Gold, silver rally, then give up gains after 50-basis-point rate cut

Gold and silver holders got what they were looking for Wednesday afternoon when the Federal Reserve’s FOMC voted for a 50-basis-point reduction in reaction to a weakening job market.

Gold and silver prices reacted positively to the news after selling off slightly during the day before the announcement. Gold rose from $2,568 to $2,590 and began testing the $2,600 level and silver rose from $30.25 to $30.90 as it edged higher to the $31 an ounce landmark.

Following a customary press conference from Federal Reserve Chairman Jerome Powell after the meeting, gold and silver had given up early gains and were trading relatively flat on the daily chart. However, by the beginning of U.S. trading Thursday, gold again was testing the $2,600 an ounce level and silver reached $31.15 an ounce.

Reaction to the decision

The federal funds rate is now at 4.75% to 5% and the committee’s “dot plot” showed an equivalent of 50 more basis-point cuts by the end of the year, which is close to what the market is pricing in, according to CNBC.

“The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the committee said in a post-meeting statement.

Just one of the FOMC’s 12 board members opted for the quarter-point reduction in interest rates — Gov. Michelle Bowman.

The decision marked a noticeable shift in sentiment from the FOMC, as Powell had said in July that a 50-basis-point cut was not being considered.

Numerous banks stuck with a forecast that the Fed would opt for a quarter-point cut, citing analysis that shows the economy is somewhat strong despite a weakening labor market.

Precious metals bull Peter Schiff posted on X after the decision, “As expected, the Fed caved to the markets and cut interest rates by 50 basis points. Not only will this round of rate cuts not stop a cooling economy from entering a recession, but it will also turn up the heat on inflation, making the recession that much worse.”

Lower interest rates typically result in higher inflation as investors are incentivized to keep money out of the economy by earning interest in fixed-income instruments.

Kitco’s Gary Wagner pointed out the unexpected short-term reaction of precious metals to the rate cut announcement.

“Gold's price movement following the announcement was particularly intriguing. Despite expectations that a larger rate cut would boost gold prices, the metal turned negative after briefly hitting a new record high. This unexpected reaction has left many analysts puzzled, as lower interest rates typically make non-yielding assets like gold more attractive,” he said.