Gold Hits Record Highs Despite Lower Rate Cut Odds
Last week, optimism surrounding the potential for a June interest rate cut drove gold to a new all-time high, while silver saw modest gains. Markets were heavily influenced by this week's calendar of economic events, which was packed with employment news, economic data, and Fed speaking engagements.
On Friday, a key inflation gauge in the personal consumption price index (PCE), which excludes food and energy, was up by 2.8% on a yearly basis and 0.3% from one month ago. While the inflation readings were in line with market expectations, for some, this meant the Federal Reserve would be less likely to cut interest rates as early as June.
Investors digested this news on Monday, as Treasury yields climbed, and stocks dipped. On the same day gold saw little change, as it hovered near $2,260, while silver saw a 0.7% daily uptick and a closing price of $25.32.
Despite the prior week’s inflation news, gold soared to a new all-time high of $2,284 on Tuesday. At the same time, the dollar index neared a four-month peak. Higher yields continued to weigh on stocks throughout Wednesday following data from ADP, which showed that the private sector added 184,000 new jobs in March, which exceeded forecasts of 155,000. Following a record quarter, stocks in the U.S. notched their third consecutive session of losses on Wednesday.
On the same day, Fed Chair Jerome Powell addressed an audience at Stanford University, where he stated that despite upticks in employment and inflation, the Fed’s overall picture of the economy had not changed. Following Powell’s remarks, the CME FedWatch Tool gave a near 99% likelihood that rates would remain unchanged in May, and about a 63% chance of a June rate cut.
Gold soared to a new all-time high and breached $2,300 for the first time ever on Wednesday, as markets reacted to Powell’s address. At the same time, silver touched a two-year high of $26.36. On Thursday, news broke that the number of Americans who applied for unemployment jumped to a nine-week high of 221,000, when economists had predicted a number closer to 213,000.
Following the news, stocks tumbled. Most notably, the Dow Jones Industrial Average ended the day 500 points lower, marking its 4th straight session of losses. Meanwhile, gold took a breather on Thursday, and consolidated near $2,271, as focus shifted to U.S. non-farm payroll data, which was set for release this morning.
Shocking employment data was released this morning, which revealed that the U.S. labor market added 303,000 jobs in March, against expectations of 200,000. At the same time, the unemployment rate dipped down to 3.8%. The positive employment news pushed stocks higher this morning, as major averages recovered from four sessions of losses.
Despite today’s uptick, the Dow Jones Industrial Average is 2.2% lower for the week. Meanwhile, the S&P 500 and Nasdaq Composite are eyeing 1.2% and 1.3% respective weekly downturns. Today’s robust labor data weighed on the odds of a June rate cut. As of this morning, the odds of a June interest rate decrease were at 58%, according to the CME FedWatch Tool. Along with this, the 10-year Treasury yield jumped to 4.37%.
Despite potential headwinds in dented rate cut odds and higher yields, gold is eyeing a 2.7% weekly gain, as the yellow metal hovers near a fresh all-time high of $2,322. Silver also saw a steep uptick this morning, and is currently at $27.37, which would be a weekly gain of 8.8%.