(Sponsored Content) Last Friday, New York spot gold rallied another 1.2% to close at a new record high above $2,581. The spot price is still touching new highs as Treasury yields and the dollar fall on speculation that the Fed may deliver jumbo rate cuts, writes Bill Musgrave with Dana Samuelson, vice president and president, American Gold Exchange Inc.
Gaining 3.5% for the week, gold has now risen nearly 25% for the year, its strongest since 2020. Silver added 3.2% to finish at $30.70, scoring a weekly rise of 10.4%.
Following recent soft CPI and PPI reports, which confirmed consumer and wholesale prices are in a solidly deflationary trend, the markets are increasingly certain that the Fed is entering a sustained and perhaps aggressive phase of monetary easing.
The Wall Street Journal and Financial Times reported last week that a 50-basis-point rate cut is back on the table for the Fed meeting. Former New York Fed president William Dudley also said that current rates are 150 to 200 basis points too high, and the case is strong for cutting by a half-point now.
Fed fund futures traders increased their bets on a half-point rate cut this month, raising the odds to 45%, up from 28% the day prior. A quarter-point is all but guaranteed. By year end, the central bank is now projected to cut 120 basis points.
Falling interest rates are bullish for gold because they weaken the dollar, making gold cheaper overseas. Lower rates also reduce bond yields, thereby decreasing the opportunity cost for holding gold instead of bonds. Benchmark 10-year Treasury yields slid to a new 16-month low on the shifting rate view, while the dollar lost ground against major rivals.
As for other precious metals, platinum picked up 2.5% Friday and 9.6% last week. Palladium added 2% for a whopping 20% rise last week, propelled by Russian threats to change export regulations to penalize the West for supporting Ukraine. Russia is a leading producer of PMGs.
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