Gold struggled to maintain its footing above the $2,500 level, slipping 0.11% on the day. The decline is largely attributed to a stronger US dollar, which gained momentum after traders scaled back expectations for aggressive policy easing by the Federal Reserve.
Silver mirrored gold's bearish trend, falling 1.17% to $28.5275. Market sentiment remains cautious as traders weigh the impact of economic data releases and geopolitical developments.
Fed Rate Cut Expectations: 31% Probability of a 50 Basis Points Cut in September
The latest data from the CME FedWatch Tool shows a 31% probability that the Federal Reserve will reduce its target rate to 475-500 basis points during its September 18, 2024, meeting. The remaining 69% of market participants expect a smaller cut, with the rate expected to fall to 500-525 basis points.
These expectations have slightly shifted from one week ago when the probability of a 50 basis points cut was at 32%. One month ago, the market was more optimistic about a significant cut, with a 74% probability of a 50 basis points reduction.
The current target rate is 525-550 basis points, and the market's cautious stance reflects the ongoing debate over whether the Fed will opt for a more aggressive easing policy or maintain a more measured approach in response to economic conditions.
This cautious market sentiment may impact various financial markets, including equities, bonds, and precious metals, as investors adjust their expectations for Fed policy.
Overall, the data suggest that while a 50 basis points cut is possible, the market is leaning more towards a smaller, 25 basis points reduction, reflecting uncertainty about the Fed's next move.
China’s Economic Slowdown and Its Impact on Demand
China’s economic slowdown adds further downward pressure on precious metals, particularly gold. The Chinese Manufacturing Purchasing Managers' Index (PMI) dropped to 49.1 in August, down from 49.5 in July, indicating a contraction in the manufacturing sector.
Given that China is the world’s largest consumer of gold, this slowdown is a significant headwind for the metal's prices. The contraction in manufacturing activity is reducing demand for gold in China, which, in turn, is exacerbating the bearish sentiment in the global market.
India’s Role in Gold Demand and Market Stability
India, another major consumer of gold, plays a crucial role in stabilizing global gold demand. However, the impact of monsoon rains and agricultural output often influences gold buying in India, as rural demand forms a significant part of the country’s gold market.
Currently, India's gold demand is showing resilience, but it’s not enough to counterbalance the weakening demand from China. Any significant shifts in India’s gold purchasing behavior, especially during the upcoming festival season, could have notable implications for global gold prices.
Samsung’s Silver-Based Batteries and Their Impact on Silver Demand
On the positive side for silver, Samsung's advancements in silver-based solid-state batteries could drive a significant increase in industrial demand. These new batteries promise a 600-mile range, a 20-year lifespan, and a quick 9-minute charge time, nearly doubling the energy density of current electric vehicle (EV) batteries.
With each battery potentially using up to 1 kilogram of silver, the widespread adoption of this technology could boost global silver demand by an estimated 16,000 metric tons. This surge in demand could provide a strong tailwind for silver prices, potentially offsetting some of the bearish pressure from economic uncertainties.
Looking Ahead: Key Economic Events and Market Outlook
The upcoming days will be crucial for both gold and silver as several key economic events are on the horizon. On Tuesday, the U.S. ISM Manufacturing PMI data will be released, followed by the JOLTS Job Openings report on Wednesday. These reports will provide insight into the health of the U.S. economy and could influence the Federal Reserve's decisions on interest rates.
On Thursday, the focus will shift to the ADP Non-Farm Employment Change report and Unemployment Claims, both of which are key indicators of labour market strength.
Finally, on Friday, the Non-Farm Employment Change report and the Unemployment Rate will be released, along with Average Hourly Earnings data.
These reports are expected to have a significant impact on the market, particularly if they come in stronger or weaker than expected.