Risk-On Market Sentiment Pressures Gold and Silver

Risk-On Market Sentiment Pressures Gold and Silver

While it is not only bullish sentiment for the risk-on asset class that has pressured gold and silver pricing today, it was one of the forces which resulted in lower precious metals pricing. Rising bond yields, a strong consumer sentiment index which went from 89.8 to 92 in September, and lessening geopolitical risks all contributed to today’s weakness in both gold and silver pricing.

As reported by MarketWatch, “China made further concessions to the U.S. on international trade on Friday, adding agricultural products like soybeans and pork to the list of imports exempted tariffs, as prospects for at least an interim deal to resolve the two-year-old trade dispute improve. The move by China follows reports on Thursday about the prospects for at least an interim deal to resolve the trade war that could involve the US delaying or reducing some tariffs on imports from China in exchange for Chinese commitments on protecting U.S. intellectual property rights and agricultural purchases.”

According to Reuters, on Thursday President Trump said he preferred a comprehensive trade deal with China but did not rule out the possibility of an interim pact. Speaking to reporters at the White House Trump stated, “I’d rather get the whole deal done. I see a lot of analysts are saying an interim deal, meaning we’ll do pieces of it, the easy ones first. But there’s no easy or hard. There’s a deal or there’s not a deal. But it’s something we would consider, I guess.”

As of 4:38 PM EDT gold futures are trading down by $11.50 (-0.78%), and currently fixed at $1495.50. Silver is trading lower by 3.61%, with the December futures contract currently bid at $17.51 which is a net decline of $0.66 on the day.

Waiting on the Fed

Next week on September 18^th Federal Reserve members will meet for the next FOMC meeting. While the CME’s FedWatch tool is indicating there is a 79.6% probability that they will announce and initiate a ¼% rate cut, this is down from yesterday’s probability of 87.7%.  One week ago, the FedWatch predicted there was a 90% probability, and one month ago it predicted that the probability of a 25-basis point rate cut was at 96.2%.

Even though according to the FedWatch tool the probability of a rate cut has been declining, market sentiment is still under the assumption that the Federal Reserve will cut rates next week. According to Barbara Rockefeller of Rockefeller Treasury Services Inc., the markets expect the Fed to cut at least two more times and likely three.

“The Fed is going to cut next week anyway—no one has any doubt about that. But markets should start girding their loins against a Fed statement that makes the point that a cut now is an insurance policy against a potentially looming recession that arises from Trump trade policy and other purely political disruptions.”

There is no doubt that traders and market participants will listen intently for the statement released by the Federal Reserve following this month’s FOMC meeting not only for the expected ¼ interest rate cut, but just as importantly for information on their path for future rate cuts.

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Wishing you as always, good trading,