Midweek Precious Metals Market News (14 August 2024) | Gold, Silver Dip as CPI Data Calms Interest Rate Cut Expectations

 

Monday Precious Metals Market Update (12 August 2024) | Gold, Silver Dip as CPI Report Dampens Odds of a Large September Interest Rate Cut

Both gold and silver dropped today as traders priced-in the latest Consumer Price Index (CPI) report released by the Bureau of Labor Statistics. The report is a key gauge used by the Federal Reserve to measure inflation in the United States. For the month of July, inflation dropped below the 3% line for the first time since early 2021. The data suggests that inflation continues to slow and is good news for the U.S. economy. 

For precious metals, the report struck a bearish blow to an otherwise bullish market. Gold prices dropped $15.52 on the day, while silver slid $.24 and lost its momentum heading toward the $28 level. Analysts say today’s CPI report makes a significant rate cut at the Federal Reserve’s September meeting less likely. On Monday, metal markets surged ahead of the Producer Price Index (PPI) report scheduled for release yesterday. Today’s data report erased a portion of Monday’s gains in both the gold and silver markets as traders scaled-back their bets for a big rate cut from the Fed. 

Earlier this month, Federal Reserve Chair Jerome Powell reiterated in a press conference that the Federal Open Markets Committee (FOMC) is committed to cutting rates once inflation appears to be moving more sustainably toward the committee’s long-held 2% target. His commentary mirrors the FOMC’s minutes from its 11-12 June meeting: 

The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

An unexpectedly weak labor report report released on 2 August sent shockwaves through U.S. and international markets as traders addressed concerns that the U.S. labor market is slowing. The downturn prompted renewed calls for immediate interest rate cuts, and a subsequent U.S. market rebound caused a run in metal prices last week. Traditionally, both metals have performed well during periods of low interest rates. Price-action across all precious metal markets this year has been strongly influenced by speculation surrounding interest rate reductions. 

Chair Powell spoke at a press conference following the Federal Reserve’s 30-31 July meeting. He emphasized the Fed’s dual-mandate to maximize employment and minimize consumer prices, saying that an unexpected slowing in the labor market might prompt rate cuts sooner rather than later: 

If the economy remains solid and inflation persists, we can maintain the current target range for the federal funds rate as long as appropriate. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond. 

A combination of stunted progress combating inflation and a slowing jobs market would have likely prompted a larger rate cut at the FOMC’s September meeting. This morning’s CPI report suggests that the United States continues to make progress toward the Fed’s 2% target, which quashed investor hopes for a major move from the central bank. 

What Does the July CPI Mean For Interest Rates and Precious Metal Prices?

While the July CPI released this morning is good news for the U.S. economy, the optimistic data set undermines Wall Street bets that a large interest rate cut will happen at the next Federal Reserve meeting. A moderate rate cut of 25 points remains likely, according to CME Group’s FedWatch tool. Bearish price trends for gold and silver markets reflect diminished expectations for a big move on interest rates from the Federal Reserve, although both metals are still up on the week. 

Gold prices stay close to record highs while the U.S. dollar hovers near a one-week low. #Commodities $GLD $DXY

— MrTopStep (@MrTopStep) August 14, 2024

Federal Reserve Chair Jerome Powell maintains that rate cuts will happen once inflation continues to move sustainably toward 2% – or once the labor market begins to slow. A slowing labor market combined with stunted progress in the fight against inflation would have prompted more aggressive action from the Federal Reserve. Today’s report from the Bureau of Labor Statistics shows that inflation remains well in-check, and market analysts are now anticipating a moderate rate cut in September instead of a large move in either direction. 

Precious metal prices this year have been driven primarily by interest rate cut speculation, so expect to see more of the same as traders price-in their bets on when – and by how much – the Fed will move to reduce interest rates.