Gold and Silver Rally on Fed Rate Cut Expectations and Supply Constraints

TLDR

• Gold prices held near a six-week high of $4,256.20 per ounce on Monday, supported by a weaker US dollar and expectations of a Federal Reserve interest rate cut in December
• Market pricing shows an 87% probability of a 25-basis-point Fed rate cut this month, driven by softer economic data and receding inflation pressures
• Silver jumped to a record high of $57.86 per ounce on Monday, continuing a six-day rally that has doubled its value this year
• Supply tightness is driving silver’s rally, with London warehouses experiencing historic squeezes and Shanghai Futures Exchange inventories hitting near-decade lows
• President Trump announced he knows his pick for the next Federal Reserve Chair but did not reveal the candidate, with names like Kevin Hassett, Kevin Warsh, and Christopher Waller mentioned as potential contenders

Gold prices remained near a six-week peak on Monday as the precious metal benefited from a softer US dollar and growing expectations of Federal Reserve interest rate cuts. Spot gold traded at $4,240.55 an ounce, after touching $4,256.20 earlier in the session.

The US Dollar Index fell to a two-week low, making gold more attractive for international buyers. Markets now show an 87% probability of a 25-basis-point rate cut at the Fed’s December meeting.

Gold had jumped more than 4% last week. The rally reflects a shift in market sentiment following softer US economic data and signs that inflation pressures are easing.

Investors have remained cautious due to a lack of fresh official data following a prolonged government shutdown. Mixed commentary from Federal Reserve policymakers has added to market uncertainty.

Silver Hits Record High on Supply Squeeze

Silver outperformed gold with a surge to $57.86 per ounce on Monday, marking a fresh record. The white metal has climbed for six consecutive days and doubled in value this year.

The rally in silver has been driven by ongoing supply tightness in global markets. A record amount of silver flowed into London warehouses in October to ease a historic squeeze, but this has created pressure in other trading centers.

Inventories in Shanghai Futures Exchange warehouses recently hit their lowest levels in nearly a decade. The cost of borrowing silver over one month remains elevated, indicating continued market stress.

Daniel Hynes, a commodity strategist at ANZ Group Holdings, said shortages in the global market from the London squeeze are still being felt. With gold taking a pause, investors have turned their attention to silver.

The move has been speculatively driven, according to David Wilson, director of commodities strategy at BNP Paribas. Accelerating upside momentum is attracting more fast money into the market.

Federal Reserve Leadership and Policy Outlook

President Donald Trump said on Sunday he already knows whom he intends to nominate as the next Federal Reserve Chair. He did not reveal the candidate’s name.

The announcement revived speculation around several potential contenders. Names mentioned include Kevin Hassett, former Fed Governor Kevin Warsh, and current Governor Christopher Waller.

The choice of Fed Chair could influence expectations for the pace and depth of rate cuts over the coming year. Lower interest rates typically benefit non-yielding precious metals like gold and silver.

Markets are fully pricing in a quarter-point rate cut in December. The expectation is based on continued weakness in the American labor market and dovish comments from Fed officials over the past week.

Silver was added to the US Geological Survey list of critical minerals last month. Traders are monitoring any potential tariff on the metal, which could create further supply constraints.

Investor interest in silver increased last month, with inflows to physically backed exchange-traded funds accelerating. Silver mining stocks also advanced on Monday, with Australian and Hong Kong-listed companies posting double-digit gains.

The gold-silver ratio has fallen close to 70, meaning it takes about 70 ounces of silver to buy one ounce of gold. Traders are watching to see if silver is becoming too expensive relative to gold.

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