Mohamed El-Erian says the Federal Reserve needs to renew its focus on its fight against rising prices after September’s surprisingly hot jobs report served as a reminder that “inflation is not dead.”
His comments came after Friday’s numbers blew away estimates, triggering a jump in US stocks and bond yields. Nonfarm payrolls rose by 254,000 in September, the most in six months.
“This is not just a solid labor market, but if you take these numbers at face value, it’s a strong labor market late in the cycle,” El-Erian, the president of Queens’ College, Cambridge, told Bloomberg Television on Friday.
“For the Fed, it means push back much harder against pressure from the markets to put you in the single mandate box,” he added. “Enough talk about, ‘The Fed should only be concerned about maximum employment.’”
Investors rapidly slashed wagers on sharper Fed policy easing in November and December after the release. The data also showed the unemployment rate unexpectedly fell to 4.1%, while annual wage growth picked up to 4%.
Swaps traders are now factoring in a little over 50 basis points of interest-rate cuts from the US central bank before the end of the year, down from more than 60 on Thursday. The yield on policy-sensitive two-year Treasury yields surged after the release, trading more than 15 basis points higher at 3.86%.
“For markets, this is pushing back on overly aggressive expectations of rate cuts by the Fed,” said El-Erian, who’s also a Bloomberg Opinion columnist. “This will get the market closer to what’s likely.”
A strike hitting ports along the East and Gulf coasts could stoke prices for food, autos and a host of other consumer goods but is expected to cause only modest broader impacts — so long as it doesn’t drag on for too long.
From a macro perspective, the impact will depend on duration. President Joe Biden, under powers granted by the Taft-Hartley Act, could step in and order an 80-day cooling off period that would at least temporarily halt the stoppage, though there’s little indication he will do so.
That will leave hopes in the hands of negotiators for the union and the U.S. Maritime Alliance that the strike won’t drag on and cause greater hardship for a U.S. economy heading into the critical holiday shipping season.
“Labor action by port workers along the East and Gulf coast of the United States will provide a modest hit to GDP,” said RSM’s chief economist, Joseph Brusuelas, who put the weekly impact at a bit more than 0.1 percentage point of gross domestic product and $4.3 billion in lost imports and exports.
“Given that the American economy is on a 3% growth path at this time we do not expect the strike to derail the trajectory of the domestic economy or present a risk to an early and unnecessary end to the current economic expansion,” he added.
Indeed, the $29 trillion U.S. economy has dodged multiple land mines and has been in growth mode for the past two years. The Atlanta Federal Reserve is tracking third-quarter growth of 2.5%, boosted by an acceleration in net exports.
A prolonged work stoppage, though, could threaten that.
Impacted areas
Some of the main industries facing challenges include coal, energy and agricultural products. One rule of thumb is that for each strike day, it takes nearly a week to get ports operating at normal levels.
“The costs of the strike would escalate over time as backlogs of exports and imports grow,” Citigroup economist Andrew Hollenhorst said in a client note. “Perishable products like imported fresh fruit might be first to come into short supply. If the strike extends beyond a few days, shortages of certain production inputs could eventually slow production and raise prices for manufactured goods like autos.”
There are potential buffers, though, to the damage a strike could cause.
For one, West Coast ports are expected to take on some of the freight business that would normally go to the eastern ports. Also, some companies had been anticipating the stoppage and stockpiled ahead of time.
Moreover, pressure on supply chains, exacerbated sharply during the pandemic, has largely eased and is in fact below pre-Covid levels, according to a New York Fed measure.
“We think fears around the potential economic impacts are overdone,” wrote Bradley Saunders, North America economist at Capital Economics. “Frequent shocks to supply chains in recent years have left producers more attuned to the risks of running low inventories. It is therefore likely that firms will have taken precautionary measures in case of a strike – not least because the possibility has been touted by the ILA for months.”
Saunders added that he thinks there’s a strong possibility that the White House could step in to the fray and invoke a cooling-off period, despite the administration’s strongly pro-union leanings.
“There is little chance that the administration would risk jeopardizing its recent economic successes less than two months before a tightly-contested election,” he said.
Inflation threat
In the meantime, there are a slew of other issues that could complicate things.
Snags in the supply chain could exacerbate inflation just as it appears price pressures have cooled from their mid-2022 peak that sent the annual rate to its highest level in more than 40 years. The maritime association is proposing raises approaching 50%, another factor that could reignite inflation just as wage pressures also have receded. The union is looking for larger increases plus guarantees against automation.
“This is clearly transitory. They will have some resolution,” said Christopher Ball, economics professor at Quinnipiac University. “That being said, in the short run, if it lasts more than a few days, if it lasts more than a week … that will certainly push up the prices of a lot of those goods and services now. It could cause price spikes in the short run during the strike, and I can easily see that pushing up prices of certain goods a lot.”
Ball expects the main areas to be impacted will be food and vehicles, both of which have exerted either disinflationary or deflationary pressures in recent months. Small businesses near the ports also could feel adverse impacts, he added.
“If it goes a week or two, you’re running into businesses that have real shortages and, yeah, they’ll absolutely have to raise those prices just to prevent broad shortages of those goods,” Ball said.
That all comes at an inopportune time for the Federal Reserve. The central bank last month cut its benchmark borrowing rate by half a percentage point and indicated more trimming is to come as it gains confidence that inflation is easing.
However, the strike could complicate decision-making. The October jobs report, which is the last one the Fed will see before its Nov. 6-7 policy meeting, will be influenced both by strike-impacted layoffs as well as those from Hurricane Helene.
It coincides with a looming presidential election on Nov. 5, and the economy as a pivotal issue.
“This would just completely complicate everything that the Fed is trying to do because they’re not getting a read to what the economy is actually performing,” Jim Bianco, head of Bianco Research, told CNBC’s “Fast Money.”
Israeli Prime Minister Benjamin Netanyahu is telling Iran that Israel can “strike anywhere.” But so can its enemies.
Iran’s latest barrage of missiles against Israel was again easily repelled. But two blasts near Israel’s embassy in the outskirts of Copenhagen today show how the Middle East’s spiral into a multi-front war has unknowable ramifications for the entire region and beyond.
Few could have foreseen how far the violence would expand when Iran-backed Hamas attacked Israel on Oct. 7 from its base in Gaza, killing 1,200 people and abducting 250 others, followed a day later by Hezbollah firing rockets into northern Israel from Lebanon.
Israel’s response, reducing the Palestinian enclave to rubble and claiming the lives of more than 40,000 people, ignited global protests and spurred allegations of war crimes, which Israel denies.
Netanyahu has promised to repay in kind yesterday’s long-range Iranian missile launches against his country. How such region-rattling reprisals might transpire hinges on targets and timing.
Former Prime Minister Naftali Bennett, one of Netanyahu’s most potent rivals, argues it’s the moment for a long-promised strike on Iran’s nuclear sites.
The focus now is on whether Iran has lost face, as its firepower appears simply no match for Israel. Questions are also being asked about whether Netanyahu was justified in defying pleas from the US and others for caution, and if escalation — taking out Hezbollah’s leader and a ground incursion in Lebanon — was the right move.
Lebanon is practically a failed state. Its government says a million people have been displaced. Meanwhile, Turkey is taking measures within Syria to halt a new surge of refugees and fears an unstoppable flow of people fleeing Iran.
Washington seems in a bind too, a month from the US elections. President Joe Biden doesn’t want his legacy to be one of unprecedented instability and is keen to avoid denting Vice President Kamala Harris’ chances of prevailing over Donald Trump.
We’re in dangerous and unpredictable new territory.
But there’s another key driver adding structural bullishness to commodities: China’s largest stimulus package since the pandemic, with the promise of more to come.
New support for China’s beleaguered housing market this week adds to prior measures — including support for Chinese-listed stocks — which all told now total over $500 billion (though estimates vary widely).
These aggressive actions are already reverberating through global commodity markets. Iron ore futures have surged over 20% in China, leading Jim Bianco, president of Bianco Research, to weigh in on X:
“The Chinese finally stimulating domestic demand gives hope that they will start to consume more. This idea is significantly contributing to this unfolding rally in industrial metals.”
Connecting the dots, it’s a short trip to higher energy prices. As Bianco notes, “The Chinese consume more energy than the US or the EU.”
Institutional investors have been caught flat-footed all around. According to the BofA September Global Fund Manager Survey, China’s growth expectations had fallen to a record low. Any shorts have likely been sent scrambling.
But US consumers might not feel the pinch in oil and gas prices, as OPEC+ was already on track to increase production by 180,000 barrels per day, starting in December. The move, spearheaded by Saudi Arabia, would increase their market share at the expense of lower prices.
For US stock investors, there may be a trade to capitalize on in the confusing geopolitical melee. In a separate report published Tuesday, BofA Global Research upgraded the Materials sector (XLB) to Overweight, saying that the sector has the highest correlation to China’s economic growth.
BofA noted that large-cap materials suffered the most when the Federal Reserve aggressively raised rates starting in 2022. It also highlighted the sector’s underweight positioning by long-only managers, both of which leave room for a potential re-rating as China’s demand accelerates.
“Underinvestment in manufacturing, single-family [homes], [and] mining over [the] last decade should drive [materials prices] higher,” noted the bank.
Commodities, it seems, are primed to have a moment.
Gold prices on COMEX rebounded from losses earlier in the day as escalating tensions in the Middle East aided safe-haven demand for the precious metal.
The Palestinian militant group Hamas said that its leader, Fatah Sharif and his family was killed in an Israeli airstrike in Lebanon Monday. The news supported demand for safe-haven assets such as gold.
However, gold prices were under pressure in Asian trade today after the US Federal Reserve Chair Jerome Powell on Monday signalled a moderate pace in the central bank’s easing cycle.
Powell says Fed in no hurry to cut rates
On Monday, Fed Chair Powell said that interest rates may fall to a level that neither restricts nor boosts the economy, though the central bank is not in a hurry to cut rates further.
Powell said at the National Association for Business Economics Annual Meeting, Nashville, Tennessee:
Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course. The risks are two-sided, and we will continue to make our decisions meeting by meeting.
The US Fed at its last policy meeting cut interest rates for the first time in four and a half years by 50 basis points to begin its monetary policy easing cycle.
Gold prices have benefited from the interest rates cut as lower rates boost demand for the non-yielding yellow metal.
“If the economy slows more than we expect, then we can cut faster. If it slows less than we expect, we can cut slower, and that’s really what’s going to decide it. But I think from a base case standpoint, we’re looking at it as a process that will play out over some time, not something that we need to go fast on,” Powell said on Monday.
Traders will be assessing these data points to understand the direction of the monetary policy easing cycle of the Federal Reserve in the months to come.
“The moderation in job growth and the increase in labor supply have led the unemployment rate to increase to 4.2 percent, still low by historical standards. We do not believe that we need to see further cooling in labor market conditions to achieve 2 percent inflation,” Powell said.
Gold prices still near record highs
Even though the US Fed has hinted at a slower pace in its monetary policy easing cycle, gold prices are still likely to benefit from lower rates.
Neils Christensen, editor at Kitco.com, said in a report:
Gold has managed to maintain its purchasing power, achieving broad-based gains and reaching all-time highs against major currencies like the euro, the British pound, the Canadian dollar, and the Australian dollar.
At the time of writing, the most-active December gold contract on COMEX was 0.2% higher at $2,665.45 per ounce.
Christensen added:
Althoughgold prices encountered some resistance at all-time highs above $2,680 an ounce last week, many analysts expect the precious metal still has plenty of upside as the Federal Reserve now leads central banks in a global interest rate easing cycle.
It wasn’t that long ago that candidates vying for the White House tried to win voters over with their plans to reduce the budget deficit, or, better yet, leave the country with no deficit at all.
But now, as the dangers of a widening deficit and mounting debt grow, former President Donald Trump and Vice President Kamala Harris are making little effort to address it. Quite the opposite: Both their economic policy agendas, if enacted, would add to the ever-growing deficit, several nonpartisan groups project.
That’s a major problem, though, and Americans cannot afford to have a president who takes the issue lightly, with everything from your ability to afford buying a home to the government’s ability to deal with emergencies like Covid on the line.
A budget deficit occurs when a country’s spending exceeds what it collects in revenue, primarily through taxes. The government makes up the difference by borrowing money through sales of securities like Treasury bonds and notes. The deficit is expected to widen under the status quo and could get even worse under proposals by both Harris and Trump, if enacted.
Already, the US is knee-deep in debt. At $28 trillion, publicly held federal debt is worth almost as much as the entire US economy.
Even Federal Reserve Chair Jerome Powell, who seldom weighs in on what elected officials should do, is concerned.
“It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path,” Powell said in a “60 Minutes” interview earlier this year.
During the Trump-Harris presidential debate earlier this month, the budget deficit was mentioned just twice, when Harris jabbed Trump for his proposals, which are expected to add considerably more to the deficit than hers. However, neither she nor Trump spoke about trying to reduce the deficit, and the moderators of the debate didn’t ask about it.
No matter who wins the presidential election, there will be a “mandate to make things worse unless something changes,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. The debt contributions both candidates’ plans carry would undermine “every part of their agendas about helping American families,” she said.
It wasn’t always like this
During the third presidential debate leading up to the 2008 election, then-Senator Barack Obama said, “There is no doubt that we’ve been living beyond our means, and we’re going to have to make some adjustments.”
“I have been a strong proponent of pay-as-you-go,” he added. “Every dollar that I’ve proposed (spending), I’ve proposed an additional cut so that it matches.”
The government had just wrapped up a fiscal year where it ran a $450 billion deficit, not adjusting for inflation. Still, that’s one-fourth the $1.9 trillion deficit the country is running for the 2024 fiscal year.
When Obama sought a second term, now-Senator Mitt Romney, then the Republican presidential nominee, said at one of their debates, “My number one principle is there’ll be no tax cut that adds to the deficit.” Obama and Romney even spent a good chunk of a debate butting heads over whose plan would be better for the deficit.
In fiscal year 2017, when Obama left office, the nation’s deficit clocked in at $670 billion, about half as large as when he arrived in 2009. But that’s mainly a result of moving past the Great Recession, which meant the government didn’t spend as much on social safety net programs and far fewer funds were expended on propping up financial institutions.
In 2016, Trump briefly mentioned the deficit in his second debate with Democratic nominee Hillary Clinton, saying, “I will bring our energy companies back and they will be able to compete and they’ll make money and pay off our national debt and budget deficits, which are tremendous.” (The country’s debt is an accumulation of the deficits it has run over time.)
But after Trump took office in 2017, the deficit gradually widened, and the national debt levels grew each year before both skyrocketed in 2020 as government spending ramped up to deal with the health crisis and stimulate the economy. In the 2021 fiscal year, during which Trump left office, the country ran a $2.8 trillion deficit.
Why you should care about the size of the deficit
Wider deficits tend to go hand-in-hand with owing more money to people who buy US debt, creating more risk for the people who loan us money and likely making them demand higher interest returns from the US government. In turn, since banks and other lenders often base interest rates on US bond yields, that could make it more expensive for everyday Americans to get a mortgage.
Additionally, when the government spends more money to pay interest on its debts, there’s less money available to, for instance, invest in new infrastructure. Case in point: The government is set to spend more on interest payments than on national defense, Medicaid and programs dedicated to supporting children, according to Congressional Budget Office projections for the 2024 fiscal year, which ends September 30.
Powell summed it up in his “60 Minutes” interview: “We’re borrowing from future generations,” he said, when instead we “should pay for those things and not hand the bills to our children and grandchildren.”
All the borrowing taking place is slowing economic growth, MacGuineas told CNN. It also may be creating “a national security risk,” since the US has become increasingly dependent on foreign countries like China and Japan to buy our debt, she said.
There’s also a risk that inflation will ramp up if the widening deficit prompts the Fed to “print more money” to help the government pay off its debt, said Kent Smetters, a professor at the University of Pennsylvania’s Wharton School who studies the budget.
If it’s such a big problem, why aren’t Trump and Harris addressing it?
“Politicians love to deliver gravy and not the spinach,” said Smetters, the faculty director of the Penn Wharton Budget Model, a nonpartisan research initiative that forecasts the effects of fiscal policies.
There’s also a game of chicken going on, he said. “Both sides want to get their stuff in there before sacrifices have to be made.” For Republicans, that means solidifying more tax cuts; and for Democrats, getting more government spending out the door. But, eventually, the country risks reaching a pointwhere it can’t continue to borrow more money to get by, which will force elected officials to make tough choices about where to cut spending and levy higher taxes.
Covid and the Great Recession have also made Americans “numb” to thinking about the problems associated with rising debt levels, Smetters told CNN. “In most people’s minds, people are much more likely to see the government borrowing money as a positive effect if it helped us get through a crisis.”
Yet voters fail to recognize that the economy would grow faster and social safety net programs would be funded for longer if the debt burden were reduced, MacGuineas said.
“If there’s deficit denial at the top, what voter is going to say, ‘Please raise my taxes and cut my spending’ if their leaders aren’t even saying it’s a problem?”
Dockworkers along the East and Gulf coasts have pledged to strike unless a new contract is reached by October, prompting experts to warn that higher prices and empty shelves could await consumers.
In fact, some experts say prices could rise before year’s end, impacting goods during the critical holiday season. The dire situation arose just as consumers were beginning to experience some relief from inflation.
The International Longshoremen’s Association (ILA) is negotiating on behalf of 45,000 dockworkers at three dozen U.S. ports from Maine to Texas that collectively handle about half of the country’s seaborne imports. It warned its members are prepared to stop work if they don’t have a new contract by the Oct. 1 deadline.
The Retail Industry Leaders Association (RILA) said in a statement that “retailers view this strike and its imminent disruption as a self-inflicted wound to the U.S. economy.”
JPMorgan estimated that for each day the ports are shut down, it will take roughly six days to clear the backlog. Analysts pegged the economic impact of a strike to about $5 billion per day, according to a research note published earlier this month.
Even though retailers have made contingency plans to minimize its effects, “the longer a work stoppage goes on, the harder it will be to do so,” the RILA said.
Several experts have told FOX Business that this type of disruption in shipping and supply chains often leads to product shortages, which drives up prices.
“If these strikes cause a rise in prices, it could push inflation higher, potentially delaying the Federal Reserve from cutting rates further,” Cody Moore, partner and wealth adviser of wealth management firm Wealth Enhancement & Prevention, told FOX Business. He added that “this delay could ultimately impact consumer costs for things like home mortgages, car loans and credit cards.”
SalSon Logistics CEO Jason Fisk told FOX Business that shoppers “should brace for a rise in prices for goods by the first quarter of 2025, or possibly even sooner.”
“Importers are actively implementing strategies to manage these risks, yet these solutions often come with their own high expenses, inevitably impacting consumer prices,” Fisk said.
Discretionary products, particularly luxury items and recreational goods, are expected to be most affected due to their high price elasticity, according to Fisk.
While the strike’s full impact remains unclear, Fisk says he is expecting “significant repercussions” such as “retail stockouts and plant slowdowns, especially as we approach the busy holiday season.”
Retail stockouts is an industry term for out-of-stock events, which is when a product is unavailable for purchase.
Costco (COST) is slinging a lot of gold bars as prices for the yellow metal continue to surge.
Sales of gold were up “double digits” in the most recent quarter, Costco CFO Gary Millerchip told analysts on its earnings call Thursday evening. Millerchip went on to add that gold was a “meaningful tailwind” to e-commerce sales in the quarter.
Costco began selling gold bars in the fall of 2023. Wells Fargo analysts have estimated Costco is selling $100 million to $200 million in gold bars each month.
The most recent gold performance led to a tongue-in-cheek moment as Costco’s call was nearing its end.
Veteran Evercore ISI analyst Greg Melich asked executives, “Given the nonfood, the success there, … I’m just curious, are there any plans to maybe bring Kirkland Signature into the gold bullion market?”
Kirkland Signature is Costco’s large private-label business.
“No plans at this time,” Costco CEO Ron Vachris said.
The gold rush at the warehouse club comes as futures for the metal hit (GC=F) record highs at $2,708.70 an ounce during Thursday’s trading session. Year to date, gold is up 30%, with the Fed’s decision to cut rates by a half percentage point last week giving it another boost.
Top gold stocks such as Freeport McMoRan (FCX) and Barrick Gold (GOLD) have gained a cool 22% and 18%, respectively, in 2024.
On its website, Costco sells its 1 oz gold bar for $2,679.99. You have to be a member to buy the bullion. It’s also non-refundable, and there’s a limit of five total units per membership.
IDX CIO Ben McMillan told Yahoo Finance this week that after years of gold being “sleepy,” it’s now firing on all cylinders as investors look to de-risk their portfolios.
“Gold historically has been … kind of associated with very risk-off, very flight to safety type trades like hard landing recessions,” McMillan said.
Despite the hefty sales of gold, Costco’s bread and butter is still hawking products like, well, bread and butter to cost-conscious shoppers.
Its fiscal fourth quarter same-store sales growth came in at 6.9%, compared to estimates of 6.4%. E-commerce sales jumped 19.5%, slightly lower than the 19.63% growth rate Wall Street was projecting.
Sales were powered by growth in appliances, food health and beauty aids, tires, toys, and gift cards, among other items.
Silver continues to shine as an attractive asset for investors, driven by a mix of favorable macroeconomic factors.
As per analysts at UBS, silver prices could see a significant rally, with a potential upside of nearly 20% over the next 12 months.
The report mentions a combination of monetary easing, industrial demand recovery, and growing investor interest through ETFs as key factors that could propel prices higher.
Currently, silver is hovering around USD 32/oz, supported by global monetary policy easing and a weaker US dollar.
The recent decision by the Federal Reserve to cut rates by 50 basis points has instilled confidence in the markets that real rates will decline further.
This environment of lower real rates is expected to bolster economic growth and fuel industrial demand for silver, which plays a critical role in sectors such as electronics, renewable energy, and medical technology.
At the same time, the weakening of the US dollar, a common consequence of falling rates, typically supports higher silver prices.
UBS forecasts that these dynamics will push silver to new highs, potentially reaching $36-38/oz by next year.
In addition to the influence of central banks, the broader recovery in global manufacturing is set to boost the demand for silver.
As production picks up across various industries, the need for silver in industrial applications will likely increase, adding further upward pressure on prices.
UBS notes that this rebound in manufacturing activity, combined with a more favorable interest rate environment, could lead to greater inflows into silver-focused exchange-traded funds.
China’s economic policies are another critical factor in the bullish outlook for silver. The Chinese government has implemented a range of stimulus measures aimed at reviving its economy, which has been under strain in recent years.
Given that China is one of the world’s largest consumers of silver, particularly for industrial use, these policies could provide a strong tailwind for silver prices.
UBS believes that if these measures are successfully implemented and followed up with additional initiatives, they could significantly bolster demand for commodities like silver.
While silver has traded within a $26-32/oz range since the second quarter of this year, UBS expects this sideways movement to give way to a broader uptrend.
The strategists foresee silver breaking out of this range and embarking on a more sustained rally, with a target price of $36-38/oz. The combination of rate cuts, monetary easing, and rising industrial demand sets the stage for silver to achieve these higher levels.
However, the analysts also caution that several risks could challenge their bullish outlook. One key risk is that the market has already priced in many of the expected rate cuts from the Federal Reserve.
Any unexpectedly strong economic data, such as a positive payroll report, could temporarily strengthen the US dollar, putting downward pressure on silver prices.
Additionally, while China has introduced numerous stimulus measures, not all have been successful in sparking a meaningful economic recovery.
If consumer demand in China does not pick up, the rally in silver and other commodities could lose momentum.
Furthermore, speculative positions in silver futures remain elevated, and a lack of positive news could prompt a pullback in these positions, dampening silver’s short-term prospects.
“For investors who are less confident of a rally in silver prices, we believe selling the downside for a yield pickup offers an alternative avenue to take silver exposure,” the analysts said.
Silver just hit its highest price in more than a decade, and growing demand and falling interest rates mean it could have more room to run.
On Thursday, silver hit $32.43 an ounce, its highest price since 2012. The metal is up 35% so far this year. That beats a 30% rally for gold, which has been trading at all-time highs.
Both silver and gold have benefitted from the Federal Reserve’s shifting stance on interest rates—with policy makers lowering rates earlier this month for the first time in four years. The Fed isn’t the only central bank taking action: On Wednesday, the People’s Bank of China announced its own rate cut, which helped fuel a broad rally that included metals as well as stocks Thursday morning.
While investors frequently buy gold and silver as safe-haven assets, they don’t offer any yields like Treasuries and other types of bonds. As a result, when yields decline, metals become comparatively more attractive.
Investors expect the Fed to continue cutting rates well into 2025. Futures market data suggest the federal-funds rate will hit 3.25% or below next September, down from 5.25% to 5.5% before the Fed’s half-point cut earlier this month.
One caveat for silver bulls: Investors have been expecting rate cuts all year. Given silver’s strong performance year to date, at least some gains from future rate cuts are likely baked into today’s prices.
Still, silver also stands to benefit from other tailwinds, including increasing demand. The commodity plays a significant role in the global economy’s transition to green energy, as a key component in solar panels and electric car batteries.
The Silver Institute, a trade group, forecasts industrial demand for silver will increase about 9% this year.
The market for silver is especially strong in China, says Citigroup, which estimates silver demand has increased 20% year over year in recent months, largely driven by production of electric vehicles, solar panels, and other electronics.
“China fundamental demand is booming,” wrote Citi analysts Maximilian Layton and Viswanathrao Kintali in a recent note.
One source of demand that hasn’t picked up yet—but could if prices remain elevated—is from U.S. investors. Investor flows into the iShares Silver TrustSLV+0.62% exchange-traded fund were negative for most of 2024, before ticking up sharply in the past three months when $770 million rushed into the $14 billion fund.
Still, the vast majority of the recent inflows came on just two days. That suggests bulk-buying by hedge fund traders, rather than small investors who tend to trickle in money over time. When it comes to silver, individual investors may just be starting to pay attention.
