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Gold and Silver Hit 7-Week Dollar Lows as US Jobs Data Mean Fed 'Can't Skip' Another Rate Rise

GOLD and SILVER fell to 7-week lows against a surging US Dollar on Thursday, trading 5% and 10% respectively below this month's highs after new jobs data sent bond and interest-rate traders scurrying to revise their expectation for rate cuts at the Federal Reserve.
Initial claims for US jobless benefits dropped almost 10% last week from start-May's 19-month high on today's seasonally-adjusted data, while continuing claims dropped below 1.8 million for the first time since start-March, also retreating from late-2021 levels.
"The data... aren't there yet [for us] to skip a meeting," said Dallas Fed President Lorie Logan, a voting member of the policy team in 2023, in a speech pushing back against expectations for a pause or reverse in the central bank's anti-inflation rate rises.
US stock markets opened lower and gold dropped to $1960 per ounce as silver prices dipped below $23.50 for the first time since 30 March and the Dollar hit an 8-week high against the rest of the world's major currencies.
That kept the price of gold for Euro investors at just 2-week lows beneath €1816 but the UK gold price in Pounds per ounce sank to £1575, its cheapest since mid-March.
Chart of gold bullion's week-end prices in US Dollars, British Pounds and Euros. Source: BullionVault
Benchmark 10-year US bond yields meantime hit 3.63% per annum, the highest cost of borrowing since mid-March, and betting jumped to 2-in-5 that the Fed will raise rates yet again in June, with the market consensus now predicting an end-year rate of 4.69% per annum according to the CME derivatives exchange's FedWatch tool.
Sharply above the low of 4.19% set as Dollar gold prices touched new all-time highs a fortnight ago, that's the highest such end-2023 Fed rates forecast since this time last month.
"The market is right to be pencilling in cuts," reckons US financial giant J.P.Morgan's head of global rates in London Seamus Mac Gorain.
"Inflation is too high and it will take a recession to bring it back down," enabling and leading the Fed to start reversing its steepest rate hikes since the early 1980s.
But "it might be very, very difficult for the Fed to very quickly cut rates unless something terrible happens," says Andres Sanchez Balcazar, head of global bonds at $680bn Swiss wealth management group Pictet, calling the current market consensus that rate cuts will start in September "extreme".
Prices in the bond market today kept the US yield curve deeply inverted, with longer-term rates continuing to run below short-term borrowing costs in what has repeatedly proven a sign of impending recession in the past.
Yesterday's assurances from both US President Biden and House Speaker McCarthy that they will negotiate a debt-ceiling deal to avoid the federal government defaulting on its obligations next month have meantime spurred anger among Democrat politicians over any agreement to cut spending.
Even with a solution to the debt limit stand-off, the US economy faces the equivalent of a quarter-point rate rise between July and September according to Bank of America analysts thanks to the Treasury needing to replenish its cash reserves by borrowing more than $1 trillion in short-term bills.
This week's falling gold prices today saw bullion traded in China, the precious metal's No.1 consumer market, show a $7.25 premium per ounce versus London quotes, back in line with historic averages and the largest incentive for new imports since the end of April.
Gold dealers in No.2 consumer India have meantime reduced the discount they've had to offer consumers to $5 per ounce versus the cost and taxation of new bullion imports, suggesting improved demand after discounts hit $25 on the record-high Rupee price of start-May.
Gold sales around last month's 'auspicious' Hindu festival of Akshaya Tritiya were lower than during the 2022 festival for 43 out of 100 jewelry retailers polled by industry magazine Bullion World, but rose for 37 respondents.
"There was [however] a significant shift in consumer preference towards lightweight and lower-caratage jewellery," says Bullion World, "indicating that consumers were looking for affordable options without compromising style."
Some jewelry retailers in Dubai have now slashed their manufacturing fees, Gulfnews reports, halving their making charges in a bid to entice new orders.

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.

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