Gold (XAU/USD) extended its rally, trading near $2,510 following the release of weaker-than-expected US Nonfarm Payrolls (NFP) data. The August report showed 142,000 jobs were added, significantly below the forecast of 164,000. This weaker employment growth, combined with a slight rise in unemployment to 4.3%, has intensified expectations for a potential 0.50% interest rate cut at the Federal Reserve’s upcoming September 18 meeting.
Jeroen Blokland summed it up in a tweet:"US nonfarm payrolls grew by 142K in August, LESS than expected. This puts a 0.50% rate cut by the Federal Reserve on September 18 firmly on the table, but it also increases recession anxiety."
A larger-than-expected rate cut could enhance gold’s appeal as a safe-haven asset by lowering the opportunity cost of holding the non-yielding metal. With recession concerns rising, investors are turning to gold as a protective asset against economic uncertainty.
Silver Faces Mixed Fundamentals Amid Indian Trade Review and Corporate Merger
Silver prices are also fluctuating due to mixed market dynamics. India’s review of its Comprehensive Economic Partnership Agreement (CEPA) with the UAE has raised questions about the impact of tariff concessions on silver imports.
Over the past year, India’s silver imports surged by 5,853%, reaching $1.74 billion, as a result of CEPA. This influx of silver supply is expected to weigh on silver prices in the near term, particularly as India reassesses the terms of the deal.
Meanwhile, First Majestic Silver’s merger with Gatos Silver is poised to increase global silver supply further. The deal, which consolidates three major silver mining districts, will boost production to between 30-32 million ounces annually.
While this merger strengthens First Majestic's position in the global silver market, the additional supply could put downward pressure on silver prices, depending on global demand.
Fed Governor Waller Supports Rate Cut, Open to Larger Reductions if Needed
Federal Reserve Governor Christopher Waller expressed his support for an interest rate cut at the upcoming FOMC meeting on September 17-18. Citing progress in controlling inflation and a moderating labor market, Waller believes the time is right to adjust the federal funds rate. He remains open to larger cuts if the economy, particularly the labor market, weakens further.
Echoing Fed Chair Jerome Powell’s recent remarks, Waller indicated that multiple rate cuts could be on the table if inflation continues to moderate. He emphasized that larger reductions could increase the chances of achieving a "soft landing" for the economy. Futures markets are already predicting a quarter-point cut this month, with the possibility of larger moves in November and December.
Outlook: Key Events to Watch
Looking ahead, traders should focus on the following key events:
- Federal Reserve Meeting: The most critical event will be the Fed's decision on whether to cut rates by 0.25% or 0.50% on September 18.
- India’s CEPA Review: Any updates on India’s trade agreement with the UAE, which affects silver imports, could impact silver prices.
- Corporate Developments: The aftermath of the First Majestic-Gatos merger and its impact on silver supply will also be important to monitor.
Conclusion: Stay Informed Amid Growing Uncertainty
Gold and silver prices are influenced by significant market events, from US jobs data to increasing silver supplies in India. While gold could benefit from rate cut speculation, silver may face short-term downward pressure due to rising supply levels.
As the Federal Reserve meeting approaches, staying informed on these evolving fundamentals will be crucial for traders navigating the precious metals market in the weeks ahead.