Gold and Silver Prices Climb on Rate-Cut Hopes

Precious metals like gold and silver rebounded in July as expectations for major central banks, particularly the US Federal Reserve, to initiate rate cuts increased. Gold futures for August delivery rose approximately 3.4%, or $78 per ounce, from their low on 28 June. Silver futures for September delivery surged 8% during the same period.

Gold is now about 3.6% away from its high, and silver is roughly 4.7% off its record. If the current trends continue, the momentum could potentially push these metals to new highs.

The primary driver behind this price surge is the weakening US dollar. Gold and silver typically rise when the dollar declines. The US dollar index, which measures the dollar against a basket of foreign currencies, fell by 1% from its recent high on 28 June as markets anticipated a Fed rate cut.

Fed Chair Jerome Powell's recent testimony before the Senate and the House emphasized concerns about the timing of interest rate adjustments. He suggested that unexpected weakness in the labor market could prompt a rate cut.

Year-to-date, gold has risen 15%, silver has surged 30%, and the S&P 500 has increased by 19%. Investors view gold and silver as safe havens amidst high equity markets, with expectations of rate cuts in the second half of the year. 

Historical financial crises have often coincided with intense rate-cut periods, driving funds into precious metals. Despite cooling inflation in Western countries, persistently high consumer prices make gold and silver attractive hedges against inflation.