Gold Rises 3% As Dollar Weakens, Rate Hike Expectations Fall

Key Facts

Will The Federal Reserve Raise Interest Rates In September?

CME Group’s Fed Watch tool shows roughly even odds that the Fed either will or will not hike rates at its September meeting. Odds that the Fed will hike rates dropped sharply on Thursday after Waller said he is leaning toward keeping rates the same. Waller said inflation is still “meaningfully above” the Fed’s 2% target, but he said trends “suggest we are finally seeing some signs of disinflation.” “If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting,” Waller said. The Fed Watch tool shows a 52.4% probability of a rate hike in September as of Thursday morning, down sharply from a 66.2% chance just two days ago. Expectations of a rate hike had increased last week after Fed chair Kevin Warsh delivered a speech at the Jackson Hole symposium analysts described as “hawkish.” There, Warsh said the Fed may have “work to do” if inflation does not decline to the Fed’s target. President Donald Trump weighed in on interest rates earlier this week, telling reporters he believes the United States should have the “lowest interest rates anywhere in the world.” “In the old days … if we announced good numbers, interest rates went down. Now, if you announce good numbers, interest rates go up because they’re so afraid of inflation,” Trump said, though he added he respects Warsh and said the Fed chair will “do what he has to do” on interest rates.

tangent

The price of silver also surged Thursday morning, rising nearly 4% to a price of $67.91 as of 11:15 a.m. Like gold, silver had declined over much of the past week after hitting its highest price in months, about $70, in late August.

what to watch for

More economic data scheduled for this week could sway the price of gold. The Bureau of Labor Statistics’ monthly jobs report is scheduled for Friday, which CNBC reported is expected to show a stagnant unemployment rate of 4.1%. “The payrolls report will probably be the biggest defining moment of the week,” Ilya Spivak, head of global macro at Tastylive, told Reuters. “If the jobs report misses expectations, and September rate hike bets decline, that could see gold move higher,” he said.

key background

The price of gold and silver were mostly stagnant this summer until they both rose throughout August. Prices declined last week as expectations that the Fed would raise interest rates in September grew. Both metals have come down from historic highs reached earlier this year, when gold reached a record price of about $5,600 and silver topped $121 in January. Prices crashed after Trump named Warsh as his pick to lead the Fed, as analysts considered Warsh less likely to slash interest rates. Metals prices generally declined throughout the Iran war, as gold and silver traded inversely with oil prices, which rose during the conflict.

further reading

Fed Governor Waller indicates he will support holding rates steady at September meeting (CNBC)