Gold News

'Macro Hedge' Gold and 'Underpriced' Silver Both Fall on Surprise US PMI Data

GOLD and SILVER prices fell Wednesday, back into the middle of New Year 2024's trading ranges so far, as new data raised doubts over the Federal Reserve starting to cut US interest rates sooner than later.
Preliminary PMI results from data agency S&P today beat analyst expectations by showing activity in the US services sector expanding at the quickest pace since July so far this month, while US manufacturing has stopped shrinking.
That contrasts with data from both the New York and Richmond divisions of the Federal Reserve, who report a steep drop in their local manufacturing sectors for January 2024.
But betting that the US Fed will cut its key interest rate in March fell hard on the S&P data, dropping back to 45% of current positions in CME futures contracts after rebounding this morning to 53%.
Watch or listen to our Gold Market Reports on YouTube.
Gold priced in the Dollar also fell hard, down almost 0.9% on the S&P PMIs to fix around $2020 per Troy ounce at the London bullion market's 3pm benchmark.
Chart of gold priced in Dollars vs. odds of a Fed rate cut in March according to CME FedWatch. Source: BullionVault
Silver meantime lost 1.5% from a 1-week high just 4 cents shy of $23 per ounce, but then rallied harder to cut the Gold/Silver Ratio – a simple measure of the 'safe haven' yellow metal's value in terms of more industrially-useful silver – back below 89 after hitting 'crisis level' peaks at the start of this week.
"Silver is stupidly underpriced here," said Swiss bullion refiners and finance group MKS Pamp's strategist Nicky Shiels late Tuesday, pointing to the Gold/Silver Ratio breaching 90 for the first time since last New Year.
Looking ahead, "The Fed will be less restrictive in 2024," Shiels says. "It's [just] a matter of when.
"Rate cuts with no real sign of consistent economic weakness is of course 'Goldilocks' for US stocks, but also for high beta precious metals like silver."
"The power of the [Federal Reserve]'s policy pivot should not be underestimated," agree analysts at Swiss bank and London bullion market maker UBS, predicting a year-end gold price of $2025.
"Ongoing macro and elevated geopolitical risks continue to justify holding exposure to gold for hedging and diversification."
Western government bonds also slipped back Wednesday following the US PMI data, but European bourses extended their gains as New York stock markets opened the day at a 4th new all-time high in a row on the S&P500 index.
China's beaten-down stock market also jumped Wednesday, rallying 1.9% from this week's new 5-year lows, after the People's Bank said it will cut the 'reserves ratio' for commercial banks at the end of next week, potentially releasing ¥1 trillion ($141bn) of extra lending.
Although lacking the fiscal 'bazooka' many pundits are now calling for, Beijing's monetary stimulus news saw crude oil rise back to $80 per barrel of Brent – the top end of its last 4 weeks' trading range, but still more than 10% lower since Hamas' 7th October attacks in Israel spurred political violence across the Middle East, with the US and UK now targeting Iran-backed Houthi fighters in Yemen for attacking ships in the Red Sea.
Shanghai gold prices were little moved, in contrast, holding a little over 1% below last week's new all-time high of ¥483 per gram at the city's afternoon benchmarking.

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