Gold & Silver Just Went Vertical

Starting at 9:00 pm last night, the surprise vertical take-off in the price of gold has not stopped. The charts show the gold price reached a new all-time high. The silver price rose to double that of gold. Let's look at why this happened and look at some upcoming news that could potentially add fuel to the fire.

The moves were ignited by inflation data from this week, even though some analysts believe expectations for a Federal Reserve interest-rate cut next week have already been factored into the precious metal. Inflation data, including consumer-price index and producer-price index reports, set the stage for a 25-basis-point rate cut next week.

The producer price index rose 0.2% last month, matching the forecast from economists surveyed by the Wall Street Journal. That rise, which reflected a cooling in wholesale costs, followed a similarly tame increase in consumer prices in the prior month.

Expectations are running at 85% for a 25-basis-point cut to Federal Reserve rates next week, with 15% odds of a 50-basis-point cut, according to the CME's FedWatch tool. Gold does not pay interest and generally benefits when interest rates are lower.

In U.S.-dollar terms, the December gold price soared as high as $2,583 an ounce on Comex, topping the previous intraday record of $2,570.40 from August 20, according to Dow Jones Market Data.

The gold contract gained $38.20, to settle at $2,580.60 for the day’s trade, which marked its 33rd all-time settlement high of the year. It was also the largest one-day percentage gain since August 16.

Federal Reserve Chair Jerome Powell has telegraphed that a rate-cut cycle is at hand, and for months markets have been well convinced that the Federal Reserve would be cutting rates on September 18. The fact that markets fully anticipate a rate cut, he continued, means there should not be an unusual move in gold prices based on the FOMC announcement.

The gold market, nevertheless, broke into a new all-time high, likely influenced by having the producer-price index behind us, and with next week's FOMC announcement.

Global interest in physical gold is well strong. A recent survey showed central banks increasing their gold allocations while reducing their allocations to U.S. dollars. The multitrillion-dollar federal deficit fires up inflation and weakens the currency, which we discuss in more detail in our monthly macro and global liquidity analysis report.