Precious Metal Prices Hold Steady Ahead of September Fed Meeting

 

Gold, Silver Hold Steady Ahead of September Federal Reserve Meeting

(Bullion News Network) – Gold and silver prices remained relatively unchanged today ahead of the Federal Reserve’s next meeting, which is scheduled for Tuesday and Wednesday of this week. The Federal Open Market Committee (FOMC) is expected to cut interest rates for the first time since 2020 at tomorrow’s meeting. Last Friday, rumors of a “jumbo” 50 basis point rate cut drove gold to a fresh all-time high at $2,589.90 per troy ounce. Silver prices also jumped last week, climbing above $30 for the first time in over a month. 

Markets moved little to open the trading week as traders brace for the impact of the upcoming Federal Reserve meeting. Before last week, analysts projected a high probability of a moderate 25 bps cut, but odds have shifted in favor of a more aggressive half-point cut in the lead-up to the highly anticipated meeting. At market close, CME Group’s predictive model FedWatch anticipates a 67% chance that the Fed will opt for a 50 bps rate cut, which would reduce the target rate to 475-500 basis points. 

Gold prices steadied ahead of the Federal Reserve meeting as traders bet on either a regular or a large rate cut, but traders still are not quite sure what to expect as the FOMC eases rates for the first time in over four years. 

Experts Divided on What a Jumbo Rate Cut Would Mean For American Markets

Forbes reports that today is the “first time since August 13th” that market futures have predicted a higher probability of a 50 bps cut than a calmer 25 point rate reduction. Last Wednesday, leading projection models anticipated only a 14% chance of a rate cut exceeding 25 bps. Adding to the uncertainty is the fact that markets generally are far more confident in the days leading up to a Federal Reserve meeting than they are this week. It is highly irregular for markets to be this divided on the tone of a rate cut just one day before the Fed meets. 

Expectations for how much the Fed will move to cut rates by have been volatile over the past month, with the odds of a 50 bps cut ranging from over 80% to as low as 12%. As of Monday, traders seem to be betting on a jumbo 50 point reduction, but this could change by the time the FOMC sits down for its September meeting tomorrow. Following the September meeting, investors anticipate a series of rate cuts leading into mid-2025. 

Current Market expectations for Fed Rate Cuts…
-Sep 18, 2024: 25 bps cut to 5.00-5.25%
-Nov 7, 2024: 50 bps cut to 4.50-4.75%
-Dec 18, 2024: 25 bps cut to 4.25-4.50%
-Jan 25, 2025: 50 bps cut to 3.75-4.00%
-Mar 19, 2025: 25 bps cut to 3.50-3.75%

https://t.co/l5IYmkf6Ih pic.twitter.com/Y2wZRHE4r5

— Charlie Bilello (@charliebilello) September 12, 2024

As of Monday, markets seem to favor a 50 bps cut, although experts are divided on how such an aggressive change will impact American markets.

On one hand, a large rate cut might seem like an “admission that [the Fed] is behind the curve,” according to analysts for Bank of America. Adding to the risk of a jumbo rate cut is the fact that every 50 bps rate cut since 1987 has “preceded a recession,” writes Sarah Hanson of Morningstar. In either case, a larger-than-expected rate cut may inject fresh uncertainty into markets, which would likely be a boon for gold and silver markets. 

Former Federal Reserve Bank of New York President Bill Dudley offers a different perspective:

A bigger move now makes it easier for the Fed to align its projections with market expectations, rather than delivering an unpleasant surprise not warranted by the economic outlook. 

Regardless of where interest rates go following this week’s meeting of the Federal Reserve, expect volatility in the gold and silver markets. Interest rate cuts generally bode well for metal prices, but, if this year’s market has told us anything, it’s that anything is possible.