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Gold held near $2,500 per ounce on Thursday as investors awaited the key US jobs report for more insights on the extent of the Fed’s interest rate cut, which could reduce the opportunity cost of holding non-yielding gold. On Wednesday, JOLTS data revealed a much larger-than-expected drop in job openings to 2021 lows, reinforcing expectations of a slowing labor market and boosting speculation for a substantial rate cut by the Fed this month. Furthermore, new data showed that core and headline PCE price annual inflation remained unchanged in July while personal income and spending expanded from the prior months. This, coupled with the ISM PMI’s sharp drop in US factory activity has raised doubts about the US economy’s resilience to higher interest rates. The CME FedWatch tool (an indication of market estimates on Fed interest rates) gives the most likely rate cut at this month’s meeting at 25 bps, and after the December meeting rate cuts totaling 100 bps. FedWatch also estimates a 50 bps cut in January. In Europe, the ECB is also expected to cut rates, given the sharp slowdown in inflation reported in August’s preliminary figures. |
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Figure 1: Gold to Silver ratio, front-month contracts Silver stabilized above $28 per ounce, halting a recent decline as weak US manufacturing and labor market data spurred bets that the Federal Reserve will cut interest rates more aggressively to avert an economic downturn. However, prospects of a US recession dampens the demand outlook for materials including silver, prompting traders to rush for safer assets like USD futures and Treasuries. Silver has been a major beneficiary of the global push towards renewable energy, particularly from the solar industry, which relies heavily on the metal for photovoltaic cells. However, global economic uncertainties and growth concerns in top consumer China have been weighing on the outlook for the renewable energy sector. On the other hand, silver futures found support from India as imports have nearly tripled in 2024, contributing significantly to demand. Additionally, rising geopolitical tensions are bolstering silver’s appeal as a safe-haven asset. |