Gold sticks near-record highs Wednesday after this morning’s softer than expected inflation data that combines with Tuesday’s labor market data to strengthen the case that the Federal Reserve will cut interest rates next week.
The producer price index posted an unexpected 0.1% decline in August. For the third time this year, PPI showed deflation. Wall Street economists had been looking for a 0.3% increase.
The Bureau of Labor Statistics revised job growth for the 12 months ended in March down by 911,000 from a previous estimate. It was seen a signal that the labor market is weaker than previously determined. The Fed has said it closely watches jobs and inflation data when setting monetary policy. The producer price index for August comes out Wednesday, followed by the consumer price index on Thursday.
December gold futures rose 0.1% Tuesday to settle at $3,682.20 an ounce on Comex, and the front-month contract gained 0.8% in the first two days of the week. The yellow metal peaked above $3,674 on Tuesday. Bullion added 5% in August after gaining 1.2% in July and slipping 0.2% in June. It’s up 39% this year. The metal rose 27% in 2024, its biggest annual gain since 2010. The December contract is currently up $9.2 (+0.25%) an ounce to $3691.40 and the DG spot price is $3655.50.
The downgrade in the jobs estimates comes weeks after U.S. President Donald Trump fired the agency’s top official and just before the publication of the inflation reports.
The latest nonfarm payrolls data from the Labor Department showed last week that the number of jobs rose just 22,000 in August, well below economists’ forecast of 75,000. The unemployment rate also increased to 4.3% It’s the latest indicator of a sputtering economy. The Fed’s favorite inflation measure, the personal consumption expenditures price index, most recently showed that core inflation rose to 2.9% in July, the highest level since February. The Fed’s inflation target is 2%.
Gold is a traditional hedge against economic uncertainty. It also tends to rally when the Fed reduces interest rates, becoming a more attractive alternate investment. Despite a series of rate cuts last year, the Fed has yet to begin reductions in 2025. The Fed last kept interest rates unchanged in July at 4.25% to 4.50%.
Separately, Trump’s attempt to fire Fed Governor Lisa Cook for alleged mortgage fraud suffered a setback after a judge blocked her termination until a lawsuit she filed to keep her job plays out.
Trump and his administration have long called for expedited rate cuts and some economists see his effort to oust Cook and threats to fire Fed Chairman Jerome Powell as threatening the central bank’s independence.
All of the investors tracked by the CME FedWatch Tool are betting that the Fed will reduce rates this month, with the vast majority expecting a 25 basis point cut. The central bank began raising interest rates in March 2022 to fight inflation, ultimately imposing increases of by 5.25 percentage points before beginning rate cuts last year.
Geopolitics also kept gold prices elevated after Israel struck Doha, Qatar, targeting senior Hamas leaders. The Russia-Ukraine war and threats of tariffs against key trading partners also kept a floor under prices.
Front-month silver futures fell 1.3% Tuesday to settle at $41.34 an ounce on Comex, and the metal decreased 0.5% in the first two days of the week. Silver rallied 11% last month after rising 1.5% in July and increasing 9.5% in June. It rose 21% in 2024. The December contract is currently up $0.364 (+0.88%) an ounce to $41.705 and the DG spot price is $41.32.
Spot palladium lost 0.4% Tuesday to $1,136.50 an ounce but rallied 1.3% so far this week. Palladium decreased 7.8% in August after climbing 8.8% in July and surging 14% in June. Palladium dropped 17% last year. Currently, the DG spot price is up $77.20 an ounce to $1190.00.
Spot platinum declined 1% Tuesday to $1,373.90 an ounce and is down 0.8% this week. It rose 5.9% last month after dropping 3.9% in July and climbing 27% in June. Platinum lost 8.4% in 2024. The DG spot price is currently up $23.00 an ounce to $1393.10.
Disclaimer: This editorial has been prepared by Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or a recommendation regarding any particular security, commodity, or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities, or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand, and accept this disclaimer.