Fed rate cut odds boost gold prices, investor demand for silver adds to physical squeeze and ATH – Heraeus

In the latest update, the analysts wrote that the chances of a U.S. rate-cut at the December Fed meeting have spiked despite mixed economic data.

“Neither employment nor inflation, nor other economic data, appear to be deteriorating in a way that would clearly indicate the need to cut rates, but consumer confidence fell sharply in November,” they said. “Two weeks ago, the odds of a rate cut by the Federal Reserve at its meeting on 10 December had fallen to 30%. Last week, the market estimate of whether the Fed will cut interest rates swung back to a greater than 80% chance as some Fed members have been talking about the potential for lower rates.”

“With the upper end of the Fed’s range about 50 bp above the 2-year Treasury yield there is some room for a cut, but not as much as in October when the gap was around 75 bp,” they added. “Meanwhile, the gold price climbed above $4,200/ oz last week which proved to be resistance earlier in November.”

Gold prices are continuing to trade in the elevated range established at the end of last week on Monday, holding comfortably above the $4,200 per ounce level.

Spot gold last traded at $4,231.93 per ounce for a gain of 0.38% on the session.

Turning to silver, Heraeus analysts noted that the physical silver squeeze has now shifted to Shanghai, with inventories hitting a 10-year low.

“Shanghai Futures Exchange (SHFE) stocks dropped to 559 tonnes last week, a 61% contraction year-to-date,” they said. “Approximately 644 tonnes of silver have been withdrawn since early October, when tightening liquidity in London triggered a short squeeze and opened an arbitrage window that drew metal out of both COMEX and SHFE warehouses."

"As a result, China’s silver futures curve has moved into backwardation, with near-term spot prices now trading at a premium to later futures contracts," they said.

"At the same time, COMEX inventories hit an eight-month low of 457 moz, down 14% from their all-time high of 532 moz in October.”

They also noted that investor demand was very strong last week, “with ETFs accumulating 9.5 moz, including a 7.5 moz inflow on Tuesday alone, the largest single day inflow since 21 October.”

“These additions lifted net November inflows to 16 moz, reversing the 13 moz of net outflows recorded in October,” the analysts said.

After rallying over 12% last week to a new all-time high of $56.42 per ounce and a year-to-date gain of 96%, silver prices are continuing top outperform on Monday, with prices shooting higher in late morning trading and approaching $59 per ounce.

Spot silver last trading at $58.783 per ounce for a gain of 4.26% on the daily chart.