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The Federal Reserve delivered on the much-anticipated interest rate cut at its most recent Federal Open Market Committee (FOMC) meeting, on 17-18 September. The Fed executed a 50 basis points (bps) cut to the federal funds rate, which can be viewed as indicative that the Fed sees a dramatic weakening in economic conditions and the threat of a meaningful economic recession… or that the Fed is being proactive and is acknowledging the fact that the U.S. economy is in the late stages of an economic expansion and the central bank needs to focus its attention on employment and economic growth rather than being primarily focused on inflation as it has been over the past few years. CPM Group believes it is the latter that acted as the impetus for a 50-bps cut in September.
While the U.S. labor market showed strength in September, it followed two months (July and August 2024) of soft data. The U.S. labor market is healthy, and data should be expected to be volatile, as has been the case over the past few months. This is to be expected at the present stage in the economic cycle. Economic growth is expected to continue slowing in the coming quarters and a recession still is likely in 2025, according to CPM Group.
The Fed’s willingness to cut rates at a strong pace, as was seen at the last FOMC meeting as well as in its projections released during the same meeting, could soften the rate of decline in economic growth.
Economic conditions are expected to slow for a variety of reasons, ranging from a relatively less robust job market to still high prices for various goods and services (the rate of inflation growth has slowed significantly but the prices of goods and services are still rising and are much higher than they were just a few years ago) which is straining consumer budgets. Added to this interest rates still are high and will probably remain higher than levels that were seen between the Great Recession and 2022 and fiscal stimulus also is down, all of which collectively is expected to weigh on economic growth in the coming quarters and potentially result in a recession during 2025.
There also are some concerns that the cutting of interest rates could reignite inflation. Lowering the cost of borrowing should help demand and could slow the pace of decline in inflation, but there are other factors that are likely to outweigh the tailwind to inflation from interest rates being reduced.
One of the primary factors that drove up inflation to multi-decade highs post covid was an imbalance between the supply and demand in various goods and services. Supply for various goods and services was hurt due to the covid related restrictions. Meanwhile demand got a boost from the massive fiscal stimulus that was injected into various economies post covid. The fiscal stimulus coupled with lockdowns resulted in a sharp increase in demand for goods and services at a time when supply from these goods and services was being hampered by covid. As lockdowns eased and consumers were free to travel and socialize, spending rose on services and this demand was sustained by a healthy job market.
All these factors that drove inflation higher post covid are not in play anymore. Demand has cooled as fiscal checks and other savings built up during covid have been spent down, which has allowed supply to catch up to demand. Some services still are problematic, but these are not necessarily expected to sharply drive inflation higher. Furthermore, a lot of that services inflation was tied to an ongoing strength in the labor market. In recent months there have been signs of weakness in the labor market which should help to weigh on services inflation, however.
Then there is the housing sector, which is expected to continue being a problem and an important contributor to inflation. That issue is tied more to a housing inventory shortfall than it is to demand or interest rates. That said, lower rates could exaggerate the problem given the number of people sitting on the sidelines waiting for rates to decline. Higher rates did not necessarily fix the housing supply demand imbalance issue either, with housing prices having risen despite the higher interest rates of the past few years. In fact, housing permits and housing starts are off from late 2021 and early 2022 levels, which can be attributed at least partially to higher interest rates discouraging builders from increasing supply due to the high cost to consumers of financing this housing. This suggests that higher interest rates possibly worsened the housing issue by reducing affordability.
Another factor, which was alluded to before, that is expected to act as a headwind to higher inflation despite lower interest rates is the reduction in fiscal stimulus. Governments were extremely generous in doling out stimulus post covid. While still high, the deficit has now shrunk. This reduction in government stimulus, which was an important contributor to the rise in inflation post covid, is now much reduced.
One ongoing risk in the market is market expectations of the amount and pace of rate cuts. Markets have repeatedly displayed a proclivity toward overestimating the timing and pace of rate cuts. There also tends to be swift swings in expectations depending on the data being released. This time it is no different.
Prior to the release of the U.S. jobs report on 4 October, the market was pricing an additional 25 bps in rate cuts over what the Fed forecasted for 2024, in its last projections released in the middle of September. The markets also were pricing an additional 75 bps in rate cuts more than what the Fed was projecting for 2025. The Fed already was forecasting a healthy number of rate cuts; the market’s expectations of rate cuts were extremely aggressive. The stronger than expected August U.S. jobs report pushed market expectations back in line with what the Fed was projecting for 2024 and 2025. It would not be surprising to see the markets swing back to pricing in greater rate cuts than the Fed. As mentioned before, the markets have a tendency to use any weakness in economic data to start pricing in greater rate cuts. This tendency has been on repeat display over the past several quarters. If the mismatch between the Fed’s actions and the market’s expectations widen it could act as a headwind to precious metals prices.
Markets In Summary
Gold prices broke several records over the course of September. Around the middle of the month there was a jump in market expectations regarding a 50-bps cut in interest rates by the Fed at its September FOMC meeting. The market was pricing a 60% probability of a 50-bps cut prior to the meeting. The Fed delivered on the 50-bps cut in rates and projected ongoing rate cuts over the next several quarters. It also projected higher unemployment, lower growth, and inflation, going forward. All these factors collectively boosted gold investment demand and helped prices reach record high levels toward the end of September. Prices have been lingering near these record levels into early October. Despite a strong U.S. jobs report, gold prices have managed to stay at elevated levels, which suggests a lot of underlying strength in the market.
Gold prices are expected to remain elevated over the remainder of this year. While prices are expected to experience pullbacks and periods of consolidation from time to time, gold is unlikely to see a reversal in trend to the downside. Economic growth is expected to lose momentum going forward, if economic indicators back this expectation it could continue to fuel investment demand into gold. The U.S. election also is expected to boost gold prices. Market volatility is expected to rise heading into the election, which is expected to be supportive of gold investment demand. Irrespective of who wins the U.S. election both domestic as well as international political risk is expected to remain a supportive factor for gold in the coming years.
While there are several political as well as economic factors that are expected to be supportive of gold prices, a lot of these factors are to a large extent already priced into gold’s presently lofty levels. This could make gold vulnerable to profit-taking, especially if several economic data releases do not present a weakening economic environment. Also, as mentioned in the front section of this report, markets have a tendency to price more interest rate cuts than the Fed is, which could lead to repricing if the Fed does not deliver at the pace the market is projecting. Gold prices have strong support around $2,550. On the upside gold prices could test fresh record highs, but in the absence of fresh political or economic turmoil, gold prices could find themselves stuck drifting at elevated levels.
Central banks remained net buyers of gold during the first eight months of 2024. That said, their price sensitive nature has been taking a toll on gold demand in recent months, with these entities turning net sellers between May and July 2024. Russian central bank gold sales, to finance government operations and the war effort, contributed to the lower total net central bank transactions.
During the first eight months of 2024 net purchases of gold by central banks stood at 3.8 million ounces. Between May and July these entities reduced their holdings by 2.2 million ounces, but in August they went back to being net buyers, purchasing 1.2 million ounces of gold that month. Gross purchases during August stood at 1.38 million ounces, of which 1.11 million ounces came from Russia.
Russia’s activity has been extremely volatile, with the Russian central bank selling 2.23 million ounces in the preceding month. Russia has been using its gold reserves to fund its war against Ukraine, which helps explain the volatile buying and selling that the central bank has been engaged in over the past couple of years. Outside of Russia, Poland and the Czech Republic were the two largest buyers of gold in August, each adding 201,000 ounces and 54,000 ounces, respectively.
Ukraine added 10,000 ounces of gold to its holdings in August, making this the first time the country added gold to its holdings since December 2021, two months before Russia’s invasion began. Purchases by these central banks suggests that there is increased nervousness among them from the ongoing Russia-Ukraine war.
Kazakhstan, meanwhile, was the single largest seller of gold in August, reducing its holdings by 167,000 ounces during the month. The Kazakh central bank has been a net seller of gold every month since May 2024, having reduced its holdings by 862,000 ounces during this period. The Kazakh government has been selling gold reserves to generate needed foreign exchange reserves.
The People’s Bank Of China has been absent from the market since May 2024. China had been adding gold on a consistent basis from November 2022 through April this year and had been an important contributor to total central bank net purchases during that period. The PBOC’s absence from the gold market has been an important drag on central bank demand. The record high gold prices are seen as the main reason the PBOC has refrained from purchases the past several months.
Central banks are expected to be net buyers of gold for the full year 2024, but the high price of the metal is serving as an important headwind to total net demand. That said, if gold prices show some signs of stability, instead of continuing to rise sharply as has been seen recently, there could be renewed interest in central bank demand.
It is not uncommon for central banks to pull back on purchases or even sell when gold prices rise. Central banks have shown a tendency to be price sensitive. It should be noted though that despite gold prices reaching record high levels in both May and July and hovering near record levels in June, there were central banks that were making purchases and excluding Russia the sales were fairly limited. This shows us that central banks are still very much interested in gold and any softness or stability in prices is likely to pull these entities back into the market.
Silver prices reached their highest levels since 2013, at the time of writing this report. The silver market has been in a rising trend alongside gold, although the price performance of silver has significantly lagged that of gold. Silver is positively affected by many of the same factors that have helped gold prices rise, but the impact on gold has been greater than that on silver for more than a year.
As mentioned in previous editions of this report, one of the biggest headwinds to silver prices has been stale bull liquidation, which is the selling of silver bought by investors in past years in anticipation of silver prices reaching fresh record high levels. This liquidation is expected to persist for a while yet even as silver prices rise, which is likely to continue acting as a headwind to prices. Even with such selling there is a high likelihood that silver prices will rise strongly over the next several quarters: Not only does the metal have fundamental support from an increased use of silver as a portfolio diversifier due to various economic and political risks, but the stale bull liquidation also is eventually expected to come to an end. The same dynamics of disenchanted investors ending their selling while fresh investor buying increases was behind the rise in silver prices in 1979 and again in 2004 – 2011.
This expectation suggests that now is a good time to enter the silver market, ahead of the projected stronger increase in silver prices over the next few years.
Given the dual role of silver as both an investment asset as well as an industrial metal, questions could arise regarding the consequences of weaker economic growth on silver prices. While weaker economic conditions could weigh on certain areas of fabrication demand such as jewelry and electronics, at least any economic weakness in the near future is not expected to negatively impact silver demand from solar panels. Additionally, and more importantly, silver prices have always been more influenced by investor behavior rather than fabricator demand. When investors turn aggressive net buyers, they have the ability to bid away metal from fabricators that typically tend to be a lot more price sensitive.
Silver appears to be positioned for some healthy gains in prices over the next few quarters due to a combination of
(c) silver’s relative value compared to gold
While platinum prices still are lower than they were in May 2024, they rose over the course of September. Platinum prices are now at a point where they could move in either direction. There are certain factors that could help platinum prices in the coming months, including lower interest rates and seasonal strength in prices. That said, if economic conditions soften in the coming months it could act as a headwind to platinum prices.
Much of platinum’s demand comes from the auto and jewelry sector, both of which are very sensitive to economic conditions. A supply side disruption seems to be the most likely scenario or occasion for a significant rise in platinum prices. While there have been reductions in platinum mine supply, they have been insufficient to offset the softness in platinum fabrication to date.
Which direction platinum prices adopt to a large extent will depend upon which of the above factors has a stronger influence on prices. It is also quite possible that platinum prices move in a sideways fashion around $1,000 over the next few months, with no clear direction. If macroeconomic conditions deteriorate over the next few months, it could result in prices testing $960 or even $900. On the upside there is initial resistance around $1,025. In the absence of any meaningful loss in supply, prices are unlikely to rise above $1,025 in the near term. Similarly, seasonal strength in prices, lower interest rates, and expected strength in gold and silver should prevent any meaningful decline below $900 through at least the end of this year.
Palladium prices essentially have been moving sideways for the past year, with outs of strength and sharp declines. One such period of strength occurred during September, with prices rising from around $900 to around $1,100. Palladium prices got a shot in the arm following Russian President Vladimir Putin’s comments about restricting uranium, titanium, and nickel mine supply. Russia is the largest producer of palladium in the world, which led to market speculation about whether such restrictions would be extended to palladium as well. This speculation led to a spike in prices.
CPM Group did not see this as being an issue for palladium. The risk of Russia restricting palladium shipments for political reasons does not seem likely. Russia, and the Soviet Union before it, never used palladium sales as a political tool, and always has professed it would try to remain a stable supplier regardless of international political relations. Furthermore, at present Russia needs the foreign exchange it earns from palladium and is unlikely to block the export of that metal. Palladium prices dissipated following the initial reaction to Putin’s comments.
Palladium prices are likely to move sideways in the coming months, with countervailing factors keeping prices range bound. Prices could range between $880 and $1,060.
After a volatile first half of 2026, CPM Group examines the outlook for gold, silver, platinum, and palladium—and why precious metals remain important portfolio anchors in a shifting economic and political landscape.
The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge.
The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge.
