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Gold and Silver Prices Gain as Fed Maintains Rates

The US Federal Reserve announced on Wednesday(May 1) that it will hold its benchmark interest rate at 5.25 to 5.5 percent following its two day Federal Open Market Committee (FOMC) meeting.

In a press conference, Fed Chair Jerome Powell largely echoed previous statements, suggesting the committee will hold rates steady until it has more confidence that inflation is on a sustainable path to its 2 percent target.

This was in line with analysts’ pre-meeting expectations based on recent data from various government agencies.

Higher-than-expected personal consumption expenditures price index data released by the US Bureau of Economic Analysis (BEA) on April 26 shows that inflation remains stubborn, with annualized growth of 2.7 percent in March. That’s 0.2 percent higher than 2.5 percent in February. A day earlier, the BEA released an advance estimate for Q1 GDP data, showing that real GDP increased 1.6 percent on an annual basis in the first quarter, down from 3.4 percent in Q4 2023.

Further muddying the waters for the Fed was an April 30 release from the US Bureau of Labor Statistics; it shows a 1.2 percent increase in labor costs through Q1. While this data is not a key indicator for the Fed, the rise continues to show the effects of inflation within the labor market, making the situation more challenging for the central bank.

Data suggests rates will stay higher for longer

Powell said the data released since the FOMC’s February meeting has created some uncertainty, but emphasized that the group is committed to restoring price stability. While the agency is continuing to maintain rates, Powell did say the Fed will keep reducing its security holdings, with the pace slowing in June.

The committee came to its decision based on the stalling of inflation rates over the past several months, as well as a tight labor market that, while becoming more balanced, continues to see demand exceed supply.

Although much of the data pushed the agency toward a higher-for-longer policy on rates, Powell suggested there are some bright spots in the American economy, including supply and demand conditions, which are returning to balance, along with unemployment remaining relatively low at 3.8 percent.

While Powell doesn’t expect another rate hike, he was unwilling to state when rate cuts could be expected, suggesting that having the confidence to make cuts will take longer than expected.

After the release of the policy decision, markets were mixed, with the S&P 500 (INDEXSP:.INX) and Nasdaq Composite (INDEXNASDAQ:.IXIC) falling 0.34 percent and 0.7 percent, respectively, by the end of the trading day, while the Dow Jones Industrial Average (INDEXDJX:.DJI) had a slight gain of 0.23 percent.

Meanwhile, the US dollar index saw a decline, losing 0.64 percent.

Gold and silver prices both saw gains, with gold climbing from US$2,299 per ounce in morning trading to a session high of US$2,327, and silver moving from US$26.43 per ounce to US$26.90, although both withdrew slightly.

Gold has traded at all-time highs in 2024, and set its latest record in early April, when it climbed to US$2,392. Silver has also performed strongly this year, breaching the US$29 level in the middle of last month.

The next FOMC meeting will take place from June 11 to 12.

Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.

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