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'End of Fed Rate Hikes' Sees Gold and Silver Rise Again with Bond Prices, Stocks

BOTH gold and silver prices continued to rise in Asian and early London trade Thursday, nearing 2-week highs – and halving the slump starting in late-September – as pundits and analysts jumped to call the end of the Federal Reserve's interest-rate rises head of today's US inflation data for September.
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"The market brushed off [yesterday's] hot PPI number," says one bullion refiner's trading desk after inflation in the US Producer Price Index accelerated on Wednesday's figures, rather than slowing as analysts predicted.
US Consumer Price Index (CPI) data released today came in higher than expected for September 2023 at 3.7% per annum, slightly above the consensus forecast of 3.6%. The annual core CPI which excludes volatile food and energy prices rose 4.1% in September meeting analysts' predictions.
Like gold and silver prices – now back up to $1880 and $22 per Troy ounce respectively after losing 6% and 12% around the start of this month – global stock markets also extended their rally on Thursday as longer-term interest rates in the bond market continued to trade below last week's fresh multi-year highs.
Chart of CPI for all urban consumers v federal funds effective rate Source; St Louis Fed
"Most assets are impacted by the Fed and its path in terms of whether it is looking to hike in the foreseeable future," says Joseph Stefans, head of trading at Swiss bullion refining and finance group MKS Pamp, "and gold is no exception."
"Investors are calling it: The Federal Reserve may be done raising rates," says a headline at The New York Times after Wednesday's release of minutes from the Fed's September 'no change' decision said 
While the ongoing strike by United Auto Workers in the US presents "a new source of uncertainty" for inflation, and while "a majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate," the minutes also said that some policymakers said they "judged it likely that no further increases would be warranted" from today's effective overnight rate of 5.33% - the highest in over 2 decades.
The Fed won't now raise rates in November according to 9-in-10 bets on CME Fed Funds futures, up from barely 1-in-2 this time last month.
Longer-term expectations have also dropped back, with a small rally in government bond prices easing 10-year Treasury yields - a benchmark rate for many commercial borrowing costs - down to 4.57% per annum.
The lowest in more than 2 weeks, that's almost 1 whole Fed rate cut below last week's fresh 17-year peak.
"[After] bumping along the bottom," says a note from bullion-market expert Rhona O'Connell, now at multi-asset brokerage StoneX, "the week-end developments in the Middle East have given some support" to the precious metals market.
"[But] it was ready for it after a hefty wash-out, including Comex [speculators] going into a net gold and silver short position.
"The bond markets are, for now at least, steadier," O'Connell adds, meaning that pressure from rising bond yields as debt prices sink has now eased.
"Markets will continue to monitor the ongoing and fluid Israel-Hamas conflict," says Stefans' colleague at MKS Pamp Nicky Shiels, "[because] broader destabilization and an extended war in the Middle East will surely demand a higher 'war premium' in both gold and oil pricing.
"But for now, what matters is US data and Fed policy and the market sentiment around that."
Oil on Thursday edged higher after losing over 2% yesterday despite giant producers Russia and Saudi Arabia vowing to maintain their output cuts.
A further drop in the Dollar's exchange-rate value helped curb the rise in gold and silver for UK and Euro investors, but the precious metals have still now halved their loss in those terms, reaching £1531 and €1772 gold and £18.05 and €20.90 silver.

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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