Gold Reaches New Highs and Silver Breaches $30 as Rate Cuts Near
Last week, gold and silver edged lower while U.S. stocks. plummeted following an onslaught of weaker-than-expected employment data. The disappointing employment news prompted debate regarding the potential size of the Fed’s September interest rate cut. This week, investors continued to look for clues on the Fed’s rate cutting path, with extra emphasis put on inflation data due out on Wednesday and Thursday.
Last week marked the worst week for the S&P 500 in over a year, as a brutal selloff pressured U.S. equities to the downside. On Monday, stocks staged a rally as optimism surrounding rate cuts boosted Wall Street sentiment. Elsewhere, gold started the week at $2,498 and firmed by 0.3% on Monday, as investors looked ahead to Wednesday’s release of consumer price data.
Gold and silver continued to trade in a tight range on Tuesday, as investors awaited the next market catalyst in inflation news. As a result, the pair ended Tuesday’s trading modestly higher at $2,522 and $28.41, respectively.
On Wednesday, data showed that the Consumer Price Index (CPI) rose 0.2% in August, which was in line with expectations. However core CPI, which strips away food and energy costs, rose by 0.3%, which was higher than the forecasted 0.2% uptick. The higher inflation reading decreased the odds of a steeper, 0.50% rate cut next week.
Stocks tumbled following the inflation reading, but would ultimately stage a huge rally, as the Dow and S&P 500 achieved the most significant daily reversal in nearly two years, led by tech shares. Gold dipped by 0.2% following Wednesday’s inflation surprise, ending the day at $2,522.
Gold’s downturn was short-lived, when on Thursday, another hot inflation reading revealed that producer prices rose by 0.3% in August, compared to the expected 0.2% rise. While higher-than-expected inflation and subsequent lessening odds of a 0.50% rate cut pressured gold the previous session, gold jumped on Thursday as even the prospect of a 0.25% rate cut boosted the appeal of non-yielding gold. As a result, gold reached a fresh all-time high of $2,568 before Thursday's close while silver breached $30 for the first time in nearly two weeks.
Gold continued its run this morning following comments from former New York Fed President William Dudley, as he made the case for a half-point rate cut next week. Following Dudley’s comments, the odds of a 0.50% rate cut jumped from 27% to 43%, while the odds for a 0.25% cut dropped from 73% to 57%, according to the CME FedWatch Tool.
Stocks jumped for the fifth straight session this morning, as rate cut optimism and surging tech shares boosted major averages. Naturally, the tech-heavy Nasdaq was the biggest winner of the three major averages this week, with a 5.2% gain. Meanwhile, the Dow and S&P 500 notched 2.2% and 3.4% respective weekly gains.