Silver Up, Gold Sideways After Record Friday Performances

 

Silver Climbs, Gold Moves Sideways to Open Week After Record Friday Performances

(Bullion News Network) – Gold prices held steady to open the week following a historic price performance last Friday. The precious metal gained only a few cents since market open this Monday but remains over $20 above the $2,700 line – an all-time high for gold prices. A combination of bullish signals drove gold to its highest price ever last week. Political uncertainty in the fog of a hotly contested presidential election, geopolitical conflicts in Ukraine and in the Middle East, and market excitement for another interest rate cut in November helped push gold to new heights once again in mid-October. 

The silver market saw an extension of Friday’s gains today, with gold jumping $.15 and settling within 10 cents of another pivotal psychological resistance line at $34/oz. Last week’s performance was one of silver’s strongest in decades and ended with the metal hitting a 12-year high above $33.50 per ounce. Silver prices are now up over 43% on the year, while gold has appreciated by around 32 percent. 

Silver’s extension of its bullish momentum from Friday, paired with gold’s marginal gains, caused the gold-to-silver ratio to continue to fall, settling at around 80:30:1. This is far from the lowest GSR of the year, which was the ratio of 73.01:1 logged on May 29th. Still, a plummeting gold-silver ratio places at least a bit of bearish pressure on silver as traders consider whether or not to pivot out of silver and into gold heading into late October and early November. 

gold vs. silver ratio still > 80 level, suggesting silver is better value… pic.twitter.com/PsBYDnWyZj

— David Cox, CMT, CFA (@DavidCoxRJ) October 20, 2024

Next Week: Markets Brace for Fresh Inflation, Labor Market Data Ahead of Key Fed Meeting

A hotly contested U.S. election and ongoing geopolitical conflicts in the Middle East continue to buoy safe haven asset prices. However, traders may be banking on a relatively uneventful week as markets prepare for two key U.S. economic data reports scheduled for release next Thursday, October 31st. The Personal Consumption Expenditures (PCE) price index for the month of September, a key report used by the Federal Reserve to gauge inflation, is scheduled for publication next week. This report will be one of the most relevant reports used by the FOMC as it meets on November 7th to set the federal interest rate. 

Clearly, the impact of this report will be significant for all markets, including the precious metals market. Speculation concerning interest rates has been a pivotal factor in gold’s price action this year, and silver prices have largely correlated with spikes (and drops) in market confidence in upcoming rate cuts. September’s surprise “jumbo” 50 bps rate cut sent gold prices to fresh all-time highs, and a virtually guaranteed 25 bps cut at the November meeting helped push gold even higher last week. 

Expect metal prices to react strongly to the tone and tenor of the PCE, a monthly report that measures consumer price inflation in the United States. As long as inflation remains well in check and falls within the Fed’s expectations, a moderate 25 bps cut is nearly certain when the FOMC meets in early November. However, an unexpected deviation (in either direction) from economic projections could change the trajectory of Fed Chair Jerome Powell’s attempt at a soft landing. In other words, expect surprising news next Thursday to result in an adjustment to market expectations concerning how large of a rate cut we should expect on Nov. 7th. 

Perhaps more pivotal to next week’s economic data calendar is the initial jobless claims report, which will give the FOMC a better idea of how the U.S. labor market is performing. Part of the impetus for the surprise 50 bps cut in September was a growing concern among economists that the job market might struggle heading into Q4 2024 and the beginning of 2025. Recent data suggests that the job market remains relatively strong, which decreases the likelihood that the Fed will opt for an aggressive and potentially inflationary 50 bps cut in November. 

The market is currently betting heavily that the Fed will indeed play it safe with a more moderate 25 bps cut, but this could change if employment falls by more than expected. As Fed Chair Powell has repeatedly emphasized throughout the year, the Fed’s dual mandate is to lower consumer prices while maximizing employment. To that end, the outcome most advantageous to another jumbo 50 basis-point rate cut would likely be an unexpected slowing in inflation paired with falling employment rates. 

If these two possibilities occur next Thursday, the Fed would likely move to cut interest rates by 50 bps, since falling inflation could mitigate the inflationary effects of a large rate cut and rising unemployment would certainly justify taking more radical action to prevent a recession. 

Of course, the FOMC will evaluate a wide range of economic data signals before deciding how to proceed at their November meeting, a meeting that will occur just two days after one of the most controversial elections of the past two decades.