Silver prices hit 3-week high on optimism over Fed rate cut, up 6% in July

Silver prices extended their winning streak for the eight consecutive trading session today to hit a 3-week high of ₹92,550 per kilo on the MCX as softer-than-expected US economic data reinforced expectations for Federal Reserve interest rate cuts. Prices have rallied 6% in July so far, on track for the biggest weekly gain since mid-May.

Markets are anticipating a rate cut from the Fed in September due to waning inflation, a slump in the US job market, and a cooling economy. Traders are currently pricing in a 73% chance of a Fed rate cut in September, according to the CME FedWatch Tool.

Also Read: Federal Reserve minutes: Waning inflation, job market slump indicate rate cut ahead

In periods of falling interest rates, gold prices typically ascend, as investors find bullion more attractive compared to income-paying assets such as bonds.

The U.S. PCE index showed that inflation in May slowed to its lowest annual rate in over three years. Core PCE prices increased by only 0.1% from the previous month, the smallest increase in six months, while the annual rate eased to 2.6%, the lowest since early 2021.

Additionally, U.S. job openings rose to 8.14 million in May, and first-time applications for U.S. unemployment benefits increased last week, with the number of people on jobless rolls rising to a 2-1/2-year high by the end of June.

The market spotlight is on the U.S. nonfarm payrolls report due on Friday. Meanwhile, the U.S. gross domestic product for Q1 increased by 1.6%, weaker than expected.

Tracking the cooling economy, the U.S. dollar is on track for a weekly decline, making dollar-priced bullion more attractive to buyers holding other currencies.

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Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough to lower interest rates, according to minutes from the June 11–12 session.

The minutes for each regularly scheduled meeting of the committee are generally published three weeks after the day of the policy decision. The Fed targets 2% annual inflation, a level it has been above since early in 2021. Officials at the meeting said data has improved lately, though they want more evidence that it will continue.

At the meeting, policymakers also provided an update on economic projections and monetary policy over the next several years.

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The FOMC “dot plot” now shows one quarter percentage point cut by the end of 2024, down from the three cuts indicated in the March update. Despite this, futures markets continue to price in two cuts starting in September.

Additionally, the committee largely maintained its economic projections but lowered its inflation expectations for this year.

The Fed has postponed rate cuts and revised its rate cut projections as inflation continued to trend above the central bank's target range in 2024. Since March 2022, the U.S. central bank has raised its policy rate by 525 basis points to the current 5.25% to 5.50% range, which is at a 23-year high.

Additionally, optimism surrounding silver was fueled by anticipated increased demand for renewable energy expansion. Silver's exceptional conductivity makes it a critical component in solar panels and other renewable energy technologies, including photovoltaic cells.

Disclaimer: We advise investors to check with certified experts before taking any investment decisions.