Anticipated Landing: Gold and Silver Sold Off

Last night, the precious metals market played a grand drama, with gold and silver prices first soaring, and then being heavily hit and falling back later in the trading session.

There may be two reasons for this situation, as I said in the headlines about the sharp drop, which is something we should have anticipated.

However, last night's situation was slightly different from previous trading sessions because we are approaching the timing of the Fed's interest rate decision.

Now let's talk about the performance of precious metals earlier in the trading session.

I can clearly tell you not to panic, the faster and higher the rebound after each big drop, the higher the price.

With the opening of the US market, a large amount of trading pushed the price of gold close to the historical high.

However, as the trading progressed, the price encountered a fierce fall, especially silver, which saw a sharp decline.

Just before the market closed, the spot price of silver fell to $27.92, breaking through the $28 mark.

Gold fell by $20.60 to $2497.03, which is indeed a "Black Friday".

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Other metals also fell, except for rhodium.

But what is the reason behind this?

Many people believe that the situation we saw on Friday afternoon was due to price suppression or selling.

Another possible explanation is that the market overreacted, especially to the expectation that interest rates would be cut by 50 basis points, based on the latest employment and economic data.

We will refer to an article from Reuters here, which further explores this issue.

As we can see, the price of gold fell back last night, falling from the position close to the historical high earlier, which was triggered by the uneven US employment data, casting doubt on the scale of the Fed's possible interest rate cut later this month.

In fact, we are getting closer and closer to the decision time, with only a few weeks left.

The Labor Department's report shows that non-farm employment increased by 142,000 in August, lower than the previous estimate of 160,000, so this data is lower than expected.

According to the data of economists surveyed by Reuters, the figure for July was also revised down to 89,000.

We see these adjustments over and over again, and these adjustments usually do not attract much attention.

However, the unemployment rate was as expected, at 4.2%, lower than 4.3% a month ago.

Now, gold traders are arguing whether there will be a 50 basis point or 25 basis point rate cut on September 18, especially after the precious metals market has reacted to this.

According to Akash Dohi, head of Citi Research North American commodities, although gold traders will also react, there are fewer derivatives in gold, so the trading volume and volatility are not as large as the silver market.

However, today, we see silver trading with gold, and the core of the problem is how long the interest rate decision has been digested by the market, and what exactly has been digested.

According to Reuters, the situation related to the Fed's decision has changed.

Traders now believe that the probability of the US central bank cutting interest rates by 25 basis points this month is 73%, and the probability of cutting by 50 basis points is 27%, according to data from the CME Fed Watch Tool.

However, when I checked in real-time, this probability is still declining, and now the probability of a 25 basis point rate cut is 69%, and the probability of a 50 basis point rate cut is 31%.

This means that the probability of interest rate cuts seems to be constantly changing.

I think there will be a significant change in the expectations of the interest rate decision when entering the market from Sunday night to Monday this week, because these data are being digested by the market.

According to the real-time data I see, it is very likely that gold and silver will start to strengthen on Sunday night.

New York Fed Chairman John Williams said that lowering interest rates as soon as possible is to help maintain the balance of the job market.

Fed Governor Christopher Waller also said that the US central bank should start a series of interest rate cuts, and he is open to the scale and pace of these cuts.

Some people believe that interest rates should not be cut and should continue to implement tight policies.

Currently, the credit card debt in the United States is huge, estimated to be about one trillion US dollars, and possibly even more.

We believe that the Fed may cut interest rates significantly, and then we expect the price of gold to face an upward breakthrough, and the price will approach $2700 in the year.

Standard Bank analyst Suki Cooper made such a prediction.

At the same time, the spot price of silver has also fallen.

These sharp declines now seem to have stabilized, and according to my observation of the market in the video, this trend is nearing the end of today's trading.

We have witnessed huge changes in the market.

When we look at the Fed Watch Tool and its changes, and refresh again, the data has turned in another direction.

Now 71% of respondents believe that there will be a 25 basis point rate cut, and 29% believe that there will be a 50 basis point rate cut.

We can see that this data is usually slightly biased towards a 25 basis point rate cut.

I think they will eventually cut interest rates by 25 basis points, so this prediction keeps fluctuating back and forth.

What does this mean for us?

It is very likely that they will only cut interest rates by 25 basis points, and the market has digested the expectation of a 50 basis point rate cut to a certain extent, and these expectations come from some released data.

If so, we may not see a significant increase in the price of gold and silver on September 18.

In other words, gold and silver may maintain the current level until further data is released.

Of course, the next key point will be the release of the CPI data, which will be the real weathervane.

If these numbers are lower than 2.9%, even if they are slightly lower, it means that they may cut interest rates by 25 basis points.

However, if the data is significantly lower than this number, such as 2.5% or 2.4%, and other economic data is also not ideal, then the probability of a 50 basis point rate cut will increase significantly.

In this case, I think only this situation can really drive the price of gold and silver to rise again.

For example, gold may reach $2550 an ounce, and silver may rise to $31 an ounce.

These numbers may appear before the Fed's meeting on September 17 and 18.

However, there are still many people who believe that it is mainly caused by price suppression, not other factors.

No matter what you think is the reason for the big rise and fall in the price of gold and silver, it will not change the fundamental of gold and silver as a hedge against economic instability for thousands of years.

Why?

Because even if the price fluctuates, the value of these two metals will not change, especially silver, no matter how its price changes, an ounce is an ounce.

This is a value that time cannot change.

You have to know that we often think in terms of US dollars, and I am no exception, because we live in a society centered on the US dollar, and 58% of the world's transactions are priced in US dollars.

Even so, we can have a small guarantee outside the system, that is, to have value beyond the price.

And this value has no substitute, and physical assets like gold and silver are irreplaceable.