Precious Metals Pull Back After First Rate Cut of 2025

 

Precious Metals Suffer Worst Drop in Months Amid Tariff Turmoil

(Bullion News Network) – Gold and silver prices pulled back on Wednesday after the Federal Reserve voted to cut interest rates by 25 basis points at its September meeting. Silver closed Wednesday afternoon nearly $1 lower per troy ounce, and gold prices fell by over $30/ozt to end the day. Gold prices continued to fall on Thursday morning, with the precious metal shedding around $15 more after markets opened. Silver reversed course, adding over $0.15 per troy ounce to its spot price. The price action Wednesday heavily favored gold, driving the gold-silver ratio over a point higher. On Thursday, the gold-silver ratio slid by nearly half a point after markets opened.

Wednesday’s FOMC outcome fell in line with market expectations. The Fed voted for a 25-point rate cut, with one voting member dissenting, arguing instead for a larger 50 basis point interest rate reduction. This was the first rate cut of 2025, and it comes on the heels of considerable controversy involving both the central bank and the Trump administration. U.S. President Donald Trump has repeatedly urged Federal Reserve Chair Jerome Powell to cut interest rates, but the economist refused to budge until two troubling employment reports in July and August suggested that the labor market may be slowing.

At a press conference following the decision, Fed Chair Powell reminded reporters that the Federal Reserve finds itself in a challenging situation. While inflation is low compared to its 2022 highs, it remains elevated above the Fed’s longstanding target of 2%. Job creation slowed in both July and August, prompting the Fed to consider cutting rates in order to bolster the strength of the labor market. As Powell warns, cutting rates can be inflationary, putting the Fed’s two objectives of moderating consumer prices and maximizing employment in tension with one another.

In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate. With downside risks to employment having increased, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance.

Analysts now project three total rate cuts in 2025, with the last two of the year coming at the Fed’s meetings in October and December. CME FedWatch projects a 77.6% probability that the FOMC will adjust rates to 3.50-3.75% at its December meeting, a 100 basis point (1%) reduction compared to the target federal funds rate prior to Wednesday’s meeting. These projections fall in line with the FOMC’s internal polling, where the median participant anticipated a target rate of 3.6% by the end of 2025. Powell pointed out during his press conference that these are not planned cuts yet and that the Fed is not on any sort of preset course.

As is always the case, these individual forecasts are subject to uncertainty, and they are not a Committee plan or decision. Policy is not on a preset course.

Safe haven assets, including gold and silver, tend to appreciate in value during periods characterized by falling interest rates. However, both gold and silver pulled back on Wednesday after the FOMC released its September decision. Speculation trading is likely behind the counterintuitive market reaction. Market expectations for a larger 50 basis point rate cut fluctuated throughout September, peaking at over 10% at the beginning of September before shrinking later in the month. Expectations of a rate cut can also sometimes play a larger role in driving gold and silver prices than actual rate cuts, since the inflationary impacts of cutting interest rates are a more direct predictor of safe haven demand. 

Platinum group metals gained on Thursday, with platinum gaining $20 per troy ounce on the heels of a $30 loss following the rate cut decision Wednesday afternoon. Palladium’s gains were more muted; the precious metal added under $10 per troy ounce to its spot price on Thursday morning.

Moving forward, rate cut speculation is poised to remain a major force in the precious metals market. A fresh PCE inflation reading is due next Friday, September 26th. Powell suggested during his press conference that the consumer-side impact of President Trump’s tariffs on prices may not be evident, but that businesses are likely to begin passing the cost of import fees onto consumers in the coming months. Next Friday’s PCE report could shed some light on whether those price increases are beginning to take effect, and inflation numbers will likely play a major role in determining how the Fed adjusts rates at its final meetings in October and December.

Gold and silver moved in opposite directions after markets opened on Thursday, with gold shedding around $15 to continue its losses after Wednesday’s Fed report. Silver gained around $0.15/ozt, driving the gold-silver ratio down half a point near the 87:1 level.