Precious Metals Climb After Cool Inflation Report

 

Precious Metals Retreat After Hawkish Fed Rate Cut Decision

(Bullion News Network) – Precious metal prices jumped today, signaling at least a brief reversal following a midweek slump. Gold and silver dropped on Wednesday, with gold retreating to a monthly low and silver dropping to its lowest spot price in over three months. Gold began to see a bit of upside on Thursday, and the reversal picked up speed this afternoon. Silver continued to slide on Thursday but jumped over $.50 to end the week above $29.60 per troy ounce. Precious metals appreciated as markets reacted to the November PCE, which came in cooler than expected. 

The Personal Consumption Expenditures report, one of the Federal Reserve’s preferred inflation gauges, introduced whetted the risk appetite of markets dampened by Wednesday’s hawkish rate cut decision. Consumer prices rose by only .1% in November, which is .3% lower than economic projections. While this does mean that inflation remained sticky last month, the data suggests that the Fed may be seeing more progress toward its longstanding 2% inflation target than markets previously thought. Wall Street rallied on the news, ending the week at a net loss but soaring over 1% as investors reacted to a moderately optimistic data set from the Bureau of Economic Analysis (BEA). 

On Wednesday, Federal Reserve Chair Jerome Powell reiterated the Federal Open Market Committee’s commitment to its dual mandate of maximizing employment and minimizing consumer prices. The FOMC cut interest rates by 25 basis points but revised its 2025 projection to include only two rate cuts for the year instead of the four anticipated by the Committee in September. Wall Street and precious metal futures reacted the same way to that report, as well as Powell’s subsequent press conference, with both asset classes losing considerable ground as traders adapted to the Fed’s newly hawkish tones on the future of interest rates in 2025. 

 Today’s PCE news is a good sign that the Fed may be on track to revise its projections for more rate cuts in 2025, but analysts say the FOMC will need to see more evidence that inflation is firmly under control before it is likely to chart a course toward drastically lower interest rates. For now, Fed Chair Powell says the Fed is on no set course when it comes to interest rate reductions. Labor market reports will be particularly important heading into 2025. If the labor market’s cool readings turn more icy, the Fed may speed up its efforts to cut rates in order to motivate businesses to borrow funds and expand operations. 

For now, the precious metals market saw a brief reprieve from what has been a relatively bearish week. Gold and silver will both end the week in the red, although each metal reclaimed at least some of its Wednesday losses as traders process some much-needed good news on the inflation front. 

*GOLD PRICES RISE 1.2% AFTER COOL INFLATION DATA$GC_F pic.twitter.com/kvkGo1Kq2Q

— Investing.com (@Investingcom) December 20, 2024

Government Shutdown Fears Pose A Short-Term Upside For Metals

UPDATE (5:15 CST) – The House of Representatives did indeed pass the revised spending bill, which was endorsed by President Biden and given approval by senior Democratic lawmakers this afternoon. The bill will now go to the Senate, where prominent Senators say they are prepared to vote on nearly any complete bill the House provides them with. For now, it appears that Congress has avoid a disastrously-timed government shutdown. 

Also weighing heavily on the metals market is a looming government shutdown as legislators race to pass an emergency spending bill before the midnight deadline. The Congressional GOP refused an extensive proposal spearheaded by Democrats earlier this week, claiming that the proposed bill contained a large number of unnecessary political concessions. A heavily edited, Trump-backed version of the bill was in turn rejected yesterday, forcing Republicans and Democrats to make one last attempt at avoiding a government shutdown just before the week of Christmas. 

Political turmoil concerning this looming government shutdown could be another market maker for gold and silver, two safe haven assets that tend to perform well during periods of political and economic uncertainty. In the case of a government shutdown, demand for safe haven assets may spike, leading to higher gold prices. Congress will attempt to quickly pass a Republican-drafted spending bill today in order to avoid the shutdown.