Pomegra
Gold fell about 1% to near $4,020 an ounce and silver lost 3% as strong GDP and hot PCE inflation kept Federal Reserve rate hike bets for December alive.
- Spot gold fell about 1% to near $4,020 an ounce, and silver dropped about 3% to roughly $52.
- Q3 GDP grew 3.4% and September PCE inflation rose to 3.6% annually, reinforcing December rate hike pricing.
- Markets price roughly an 83% chance of a quarter-point hike, with the 10-year Treasury yield near 5.0%.
Lead
Gold fell about 1% on Thursday to near $4,020 an ounce, and silver dropped about 3% to around $52. Stronger-than-expected economic growth and persistent inflation reinforced expectations that the Federal Reserve will raise its fed rate again before year-end. Spot gold last traded at $4,024.60, down $42.00, while spot silver stood at $52.18, down $1.67. Silver touched its lowest level in roughly 11 months. Investors in exchange-traded products such as SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) saw the same direction of travel.
Why Did Gold and Silver Fall on Thursday?
Gold and silver fell because firmer growth and inflation data raised the odds of higher interest rates, which reduce the appeal of assets that pay no yield. Gold earns nothing while it is held, so a rise in Treasury yields and a firmer dollar raise the opportunity cost of owning it.
The pressure built over two sessions. The Federal Open Market Committee voted 10-2 on Wednesday to hold its policy rate at 3.75% to 4.00%. Two members dissented in favor of an immediate 25-basis-point increase. Chair Kevin Warsh said economic activity is expanding at a strong pace while inflation remains elevated, a combination that left the door open to a move in December.
Thursday's data then widened that door. Futures markets now assign roughly an 83% probability to a December hike. The 10-year Treasury yield held near 5.0%, and the dollar kept its support from the firm rate outlook.
How Strong Was the Economic Data?
The data was stronger than forecast on both growth and prices. Third-quarter GDP expanded at a 3.4% annualized rate, above the 3.2% consensus and up from 2.2% in the second quarter. Consumer spending grew at a 3.8% pace.
September inflation also ran hot. The personal consumption expenditures price index rose 0.5% on the month, compared with 0.3% in August, lifting the annual rate to 3.6% from 3.4%. Core PCE, which strips out food and energy, rose 0.3% on the month and 3.1% on the year, up from 3.0%. Weekly initial jobless claims were about 194,000, a level consistent with a tight labor market.
Energy prices remain a factor in the headline figure. Brent crude traded near $114.88 a barrel and WTI near $102.00 on Thursday, both slightly lower on the day.
Why Did Silver Fall More Than Gold?
Silver fell more than gold because it is more sensitive to rate expectations and to industrial demand. Strong growth would normally support industrial metals, but the prospect of tighter credit and a stronger dollar outweighed that effect on Thursday.
The result was a wider gold-to-silver ratio, which rose to around 77, its highest in 11 months. That ratio measures how many ounces of silver are needed to buy one ounce of gold. A higher reading signals that silver is underperforming.
Key Levels
Gold's immediate support sits at $4,024 and then $3,986, with resistance at $4,084 and $4,146. Silver has support at $52.69 and $51.30, and resistance at $54.68 and $56.42. A close below $4,000 for gold would mark its weakest position in several weeks.
What Comes Next for Gold and Silver?
The next move depends on whether data continues to support a December hike. Further hot inflation readings or a strong jobs report would likely push December odds higher and add pressure on bullion. A softer print would lower yields and give precious metals room to recover.
The Fed's own divisions matter as well. Two dissents for an immediate hike show that part of the committee sees inflation as the larger risk. With core PCE at 3.1%, above the central bank's 2% target, that view carries weight. The central question for metals is whether rates rise by a quarter point in December or whether the committee pauses again and lets the effect of earlier policy settings play out.
Outlook
Gold near $4,020 and silver near $52 are trading on interest rate expectations rather than on demand for safe havens. Growth of 3.4%, PCE inflation of 3.6% and a 10-year yield near 5.0% have kept December hike odds above 80%. Until inflation cools or growth slows, the policy outlook is likely to remain the main driver of precious metals prices.
Mentioned tickers: GLD, SLV
