Gold News

Silver FOMO 'Needs Gold Price to Catch Up' as Slower Inflation Edges Real Interest Rates Positive

GOLD and SILVER trimmed this week's sharp rebound versus the falling Dollar in London trade Friday, falling back from 1-week and 10-week highs respectively after new US house-building data contradicted the wider slowdown signalled for the world's largest economy.
With gold in USD falling $10 from a mid-morning peak of $1993 per Troy ounce, the UK gold price in Pounds per ounce dropped back below £1600 after making near 3-week highs, and the Euro price of gold dropped to €1825, also rising just 0.3% from last weekend.
UK retail sales sank 2.7% by volume in October from the same month last year, new data said today, almost twice the drop expected on analysts' consensus forecasts.
Last month's inflation across the 20-nation Eurozone was meantime confirmed at 4.2% per year excluding volatile fuel and food, the slowest pace since July 2022.
As in the UK, that puts the region's key central bank interest rate only 0.2 percentage points below the pace of core inflation, the least negative 'real rate' since the European Central Bank in 2008 slashed its deposit facility below the rate of growth in the cost of living.
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US interest rates have now been positive in real terms for 5 months in a row, with the effective Fed Funds rate running 1.3% above core inflation in October – the highest margin since January 2008, eve of the crash phase of the global financial crisis.
That means US interest rates have now been positive in real terms for a little over 25% of the time since the turn of the century.
Chart of effective Fed Funds interest rate (blue) vs. core CPI inflation (red). Source: St.Louis Fed
"[While] we're making progress on inflation, discernible progress," said Cleveland Fed president Loretta Mester – a non-voting member of the FOMC until 2025 – to CNBC yesterday, "We need to see more of that."
Betting in Fed Funds futures now puts the odds of the US central bank making its first cut to interest rate in May at 70%, reversing the market's view since October's inflation data was published earlier this week.
With the UK continuing to see the highest inflation among rich-world economies, "Our latest projections indicate that [UK] monetary policy is likely to need to be restrictive for an
extended period of time," said Bank of England deputy governor Dave Ramsden in a speech Friday.
Silver prices had earlier fixed at London's midday benchmarking auction at $24 per Troy ounce, the highest Friday fix in 11 and 6.7% above last week's level, the strongest such rise since mid-July.
Priced in Sterling and Euros, silver bullion today touched its highest so far this month at $19.42 and €22.20 respectively.
"The silver chart is constructive," says strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp, "with some potential FOMO [fear of missing out] buying above $24 into trendlines.
"But while markets are aware silver can run, it can't run too long without gold's assistance and [not] without gold retaking $2000 [in the near-term].
Data from derivatives exchange the CME says that the number of silver futures contracts now open has swollen by 7.4% so far this month, more than twice the 3.2% seen in Comex gold futures.
On the latest positioning data gathered by US regulators the CFTC, bullish derivatives bets on silver prices among hedge funds and other speculative platers were below half the 5-year average at the start of last week, with bearish bets only 1/5th below their average size.
That contrasts with gold futures and options, where the number of bullish bets stood almost exactly in line and bearish bets were 2% smaller than their 5-year averages.
Giant silver-backed ETF investment trust the SLV shrank in size on Thursday's price jump, heading for net liquidation of 0.5% for the week so far.
Rich-world government bond prices meantime extended their rebound on Friday, squashing 10-year US Treasury yields down to the lowest since mid-September at 4.43% per annum.
The Nasdaq index of US-listed tech stocks slipped at the opening, but New York equities held on track for a 3rd consecutive week of gains as the Dollar retested 10-week lows on the currency market.
Tracking the greenback's value against the rest of the world's major currencies, the trade-weighted Dollar Index has now fallen by nearly 3% from early October's 11-month high.
Gold priced in the Dollar has risen by 9.4% since then, and silver prices have risen by 14.8%.
Both the number of building permits and new house-building starts rose in October, the Census Bureau said Friday, beating analysts' consensus forecasts.

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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