On Wednesday, gold and silver prices experienced a significant rise, although the gains narrowed by the end of the trading session. The initial uptick was driven by U.S. inflation data coming in lower than expected, which resulted in a drop in both the U.S. dollar index and Treasury yields.
Gold prices soared to a peak of $2,351.80 per ounce, while silver prices surpassed the $30 mark. However, prices retreated following the release of the Federal Open Market Committee (FOMC) decision in the afternoon.
Data showed that the U.S. Consumer Price Index (CPI) for May remained flat on a monthly basis, with a year-over-year increase of 3.3%, both figures falling short of expectations. The core CPI, excluding food and energy, rose by 0.2% month-over-month and 3.4% year-over-year, also below forecasts.
The conclusion from this data is that inflationary pressures in May significantly eased. The report increased market expectations that the Federal Reserve might consider rate cuts in September and December. Kathy Bostjancic, Chief Economist at Nationwide, mentioned that if inflation data continues to moderate in the coming months, the Fed may begin cutting rates in September and follow with another cut in December.
Consequently, the yield on the U.S. 10-year Treasury note plunged from 4.40% to 4.256% following the CPI release. Simultaneously, the U.S. dollar index (DXY) dropped sharply as markets reassessed the outlook for U.S. monetary policy.
Precious metals traders believe that the easing of inflation might prompt the Fed to cut rates later this year. If the Fed starts to loosen its monetary policy, other major central banks may follow suit. Remarkably, last week, the central banks of Canada and the European Central Bank initiated rate cuts ahead of the Fed, potentially heralding a period of prolonged monetary easing.
However, gold prices pulled back after the Fed’s statement was released at 2 PM, and they turned negative following Fed Chair Jerome Powell’s press conference. COMEX gold futures closed up 0.61%, settling at $2,340.70 per ounce, while COMEX silver futures rose 1.97%, closing at $29.808 per ounce.
As anticipated, the Federal Funds rate range remained steady at 5.25%-5.50%, a level maintained since the last rate hike in late July of the previous year. Additionally, the Fed’s June “dot plot” indicated a reduction in the median expected rate cuts for the year, dropping from three in March to just one. Specifically, 11 officials projected at most one rate cut this year, while the remaining eight forecasted two cuts.
Moreover, the Fed acknowledged an increase in the “neutral rate.”
David Rosenberg, founder and president of Rosenberg Research, commented that while Fed rate cuts might be delayed, they are inevitable. He predicts that once the Fed cuts rates, gold prices will see a significant surge, anticipating a rate cut in September. In terms of silver, its outlook remains bright due to the green energy transition. Silver is both an investment asset and an industrial metal crucial for electronics and solar panels.
As markets continue to digest the Fed’s future monetary policy trajectory, gold and silver prices are likely to remain sensitive to upcoming economic data and central bank actions. Traders and investors will be closely watching for further indications of inflation trends and potential rate adjustments.
