Gold News

'What a Day!' Gold and Silver Jump as Fed Quits 'Higher for Longer'

GOLD and SILVER prices leapt against a falling US Dollar overnight Thursday, more than reclaiming the $2000 and $24 marks respectively after the US Federal Reserve surprised pundits and traders by slashing its 'dot plot' interest-rate forecast for 2024, upending its mantra of 'higher for longer' – and lighting a fire under the stock market and bond prices – even as Fed chairman Jerome Powell repeated the phrase once more. 
The Dollar fell to a new 4-month low on its trade-weighted DXY index against the rest of the world's major currencies, sinking by 1.4% from the minute before the Fed's announcement.
Longer-term interest rates also sank, hitting the lowest since late-July on the US Treasury's 10-year bond with a drop to 3.92% per annum, more than a quarter-point lower from the minute before Wednesday's Fed announcement and economic forecasts.
Watch or listen to our Gold Market Reports on YouTube.
"What a day, what a day!" says a note from Chinese bullion bank ICBC's former Tokyo branch manager, now chief director of the Japan Bullion Market Association, Bruce Ikemizu – currently on track to win the London Bullion Market Association's 2023 gold price forecast competition with an annual average prediction of $1950 against $1937 so far.
Spot bullion's earlier weakness this week suggested that last Monday's 'blowoff top' at a new record gold price of $2143 "had a huge impact on market participants," Ikemizu says, "[leading to bullish] longs being unwound" because it looked like that "explosion set gold's highs for the year."
But last night's move saw gold "move beautifully" higher in opposition to a sinking Dollar and longer-term interest rates, reaching $2040 per Troy ounce today.
Chart of gold vs. the Dollar Index (upper panel) and gold vs. 10-year US Treasury yield. Source: Bloomberg
After projecting just one cut of 0.25 percentage points for 2024 in its September dot plots, the US central bank's monetary policymakers now expect to cut rates three times from today's 2-decade high as GDP growth and inflation on the core PCE measure both slow around 1 percentage point to 1.4% and 2.4% respectively, while the jobless rate rises to 4.1%.
"[Higher economic growth] could mean we need to keep rates higher for longer," said the Fed's Jerome Powell on Wednesday, speaking to journalists after the release of December's 'no change' policy decision.
"It could even mean ultimately that we would need to hike again."
But rate increases are "not the base case anymore" he explained, saying that the discussion of when to start cutting US interest rates is now "coming into view."
Betting on when the Fed will make its first cut to overnight interest rates now puts the chances for March at better than 9-in-10, surging from barely 1-in-3 only this time last month.
Next December will then see the Fed's key interest rate set at 3.80% per annum, according to the consensus position shown by the CME derivatives exchange's FedWatch tool.
The Fed itself, however, last night projected an end-2024 interest rate of 4.60%.
After New York's Dow Jones and Nasdaq tech-stock index both ended Wednesday at fresh all-time highs, the MSCI World Index of rich-economy equities extended yesterday's 1.1% gain to reach the highest since February 2022, eve of Russia's all-out invasion of Ukraine.
Wholesale gold bullion fixed at London's mid-morning benchmarking auction $52 per Troy ounce above yesterday's 10:30 price, the 5th steepest 1-day rise of the past 3 years.
Like the Dollar gold price, so-called 'crypto currency' Bitcoin rallied hard on the Fed's announcement but it struggled to hold 1-week highs.
Among investment products, giant gold-backed exchange-traded fund the GLD grew 0.3% on Wednesday, but that didn't quite reverse the previous day's investor outflows.
No.2 gold ETF the IAU was meantime unchanged in size for the 4th session running, and silver's giant SLV was also unchanged in size Wednesday after seeing the sharpest growth in 3 months on Tuesday, expanding its shares in issue by 1.7% as the ETF's price tracked silver bullion down to new 4-week lows.
Physical silver then fell further on Wednesday, hitting the lowest in a month at $22.51 per Troy ounce just before starting a 6.6% surge once the Fed released its December policy announcement and forecasts.
The UK gold price in Pounds per ounce also jumped overnight but cut its gains to trade at £1600 after the Bank of England – despite new data signalling a deeper economic recession – held its key interest rate unchanged and vowed to keep raising if needed to defeat inflationary pressures, " pushing back against the tide of euphoria unleashed by the Fed, [a] bit like Canute without the self awareness," according to Bloomberg columnist John Stepek.
Gold priced in the Euro also fell back towards last weekend's level, trading beneath €1860, after the European Central Bank similarly denied any plans to start cutting its key interest rate in 2024 despite cutting its own GDP growth forecasts for next year.
The last major Western central bank to start hiking returns to cash savings, the ECB waited until June 2022, when inflation had reached more than 8% per year across the 350-million citizen single currency zone, to end its decade-long negative interest rate policy.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals