Gold prices have soared, reaching an intraday high of $2,634 as investors seek refuge in the precious metal amid a weakening US dollar. The recent shift in Federal Reserve policy, which saw an unexpected 50 basis point rate cut, has significantly impacted the market. The Fed's decision to lower interest rates to the 4.75-5.00% range marks a strategic move to support the US economy, and analysts expect an additional 75 basis points of cuts in 2024.
Fed Chair Jerome Powell emphasized that the rate cuts reflect the central bank's commitment to stabilizing inflation and maintaining low unemployment. As the US dollar weakens due to lower interest rates, non-yielding assets like gold become more attractive to investors. Lower rates reduce the opportunity cost of holding gold, further driving its demand.
Philadelphia Fed President Patrick Harker supported the rate cut, citing both "hard" and "soft" economic data as critical to the Fed’s decision-making process. The Fed’s dovish stance continues to bolster gold's position as a safe-haven asset, with heightened expectations for further cuts likely to keep the dollar under pressure.
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Escalating Middle East Tensions Drive Gold Demand Higher
Geopolitical instability in the Middle East is adding to the upward momentum in gold prices. Rising tensions, particularly between Israel and Hezbollah, have increased investor demand for safe-haven assets. Israeli military actions in Lebanon and Gaza have intensified, raising fears of a larger-scale conflict. Gold’s role as a store of value during times of crisis remains solid, and the combination of a weak US dollar and heightened geopolitical tensions makes gold an attractive asset.
Silver Holds Strong at $31 Amid Fed Rate Cuts and China’s Liquidity Injection
Silver (XAG/USD) is holding steady above $31.10, despite a slight decline earlier in the week. Investors are closely watching the US Purchasing Managers’ Index (PMI) data for further economic insights. However, silver remains supported by a weaker US dollar and ongoing geopolitical tensions.
The Federal Reserve’s surprise 50 basis point rate cut has further enhanced silver's appeal. Lower interest rates typically boost demand for non-interest-bearing assets like silver. While Fed Governor Christopher Waller signaled potential future cuts, he noted these would depend on upcoming data.
Philadelphia Fed President Patrick Harker emphasized the importance of both hard and soft economic data in future monetary policy decisions, keeping silver attractive in uncertain times.
China’s Liquidity Boost and Its Positive Impact on Silver
On the global front, the People’s Bank of China (PBoC) has injected significant liquidity into its banking system, positively influencing silver prices. The PBoC added CNY 74.5 billion through a 14-day reverse repo, lowering the interest rate to 1.85%, along with an additional CNY 160.1 billion via a 7-day reverse repo.
This move signals China’s efforts to stabilize its economy, potentially driving increased demand for industrial metals like silver. The added liquidity, combined with steady lending rates, is likely to stimulate industrial activity, which in turn increases the demand for silver, particularly in the manufacturing sector.
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