Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

AustinConsolidating last week's 3.5% rally, gold inched down less than $1 to hold above $2,580 despite falling Treasury yields and a weaker dollar as gold traders treaded water before this week's Fed meeting. Silver added 0.2% to finish at $30.77 an ounce.

The question is not whether the Fed will reduce interest rates at its upcoming meeting but by how much. In most cases, barring a crisis, the Fed likes to cut rates by small increments like a quarter-point. But while the economy and the labor market are both clearly cooling, neither is at risk of freezing solid at this point.

Many on Wall Street therefore dismiss the likelihood of a bigger cut in favor of a sustained series of small ones. A speculative consensus is forming on quarter-point cuts at each of the next seven meetings, dropping rates by 175 basis points by next summer, according to MarketWatch.

But Fed fund futures traders apparently disagree, lifting the odds of a half-point cut to 67% today, up from under 50% on Friday. The shift began after the Wall Street Journal and Financial Times reported late last week that a 50 basis-point rate cut is back on the table.

Benchmark 10-year Treasury yields retreated to a 13-month low as bond traders prepare for substantially lower interest rates in coming months. The dollar also fell against major rivals, with the dollar index hitting the lowest level of the year.

Falling interest rates are bullish for gold because they weaken the dollar, making gold cheaper overseas. Lower rates also reduce bond yields, thereby decreasing the opportunity cost for holding gold instead of bonds.

Platinum fell 1.8% while palladium rose 0.6%.

At the New York spot close: gold dipped 90 cents to $2,580.40; silver rose 7 cents to $30.77; platinum shed $18.60 to $988.20; and palladium added $6.60, to $1,082.60 an ounce.