A Big Week for Gold and Silver Prices

Gold and Silver Prices Set for Volatility Amid FOMC Meeting

This week brings the long-awaited September FOMC meeting and, with it, the first cut of the fed funds rate as the new rate cutting cycle begins. But will that first cut be 25 or 50 basis points? 

Fed Rate Cuts and Their Impact on Precious Metals

The September FOMC meeting begins on Tuesday and ends on Wednesday with the statement and Summary of Economic Projections (SEP) at 2 p.m. ET and Jerry Powell's press conference at 2:30 ET. These events will move the markets and, as such, must be watched closely by precious metal investors.

What is expected to happen? Let's take those three items and break them down one by one. 

First, the headlines at 2 p.m. There is no remaining doubt that a fed funds rate cut is pending, but the question is: how much will rates be cut? As I type this on Monday morning, the fed funds futures market is pricing in a 63% likelihood of a 50 basis point (0.50%) cut.

Personally, I believe that Powell is too pragmatic to move that quickly and he will urge the FOMC to get the new cycle rolling with just a 25 basis point cut. On the flip side, some politicians are out today with a letter urging Powell to cut by a whopping 75 basis points.

So, we've got Powell The Pragmatic thinking 25 but some politicians urging 75. Maybe, in the end, the FOMC splits the difference and does indeed end up cutting 50? Even if they do, the rate range will remain elevated at 4.75-5.00% with an "effective rate" of 4.90%. That's still a whopping 1.35% higher than the current yield on the U.S. two-year note! As you can see, the treasury bond market is already pricing in much steeper cuts to come.

The other item that the FOMC releases at 2 p.m. ET Wednesday is their latest Summary of Economic Projections. This addendum comes with all quarterly FOMC meetings, and the most recent update was back in June. See below:

The SEP is basically a compilation of committee member guesswork. Where do they see GDP in the months ahead? How about inflation and unemployment? And how many rate cuts do they foresee under these scenarios? Again, these folks don't have any more of an idea where things are headed than you and I, but this "forecast" is closely monitored upon its release. A potentially bullish scenario for gold would be weaker growth, higher unemployment, and more rate cuts. We'll see...

And, finally, the main event will be Jerry Powell's press conference at 2:30 ET. What will he say and how will he say it? Recently, Jerry's perceived "dovishness" has led to precious metal price rallies during and after the event. Will that happen this Wednesday too? Again, we'll see...

Let's wrap up by looking at the price charts as this important week begins. Last week brought massive rallies in both COMEX gold and silver. This came amid growing rate cut expectations and a realization that the U.S. fiscal situation is exponentially worsening. At TF Metals Report, we've spent the past 14 years preparing for what we call "The End of The Great Keynesian Experiment". With the latest monthly U.S. budget deficit coming in at a mind-blowing $380 BILLION, the end certainly appears to be within sight.

Gold Price Forecast: All-Time Highs and Key Levels

The COMEX gold price broke out on the news and made new all-times above $2600 on Friday. This is nice, but it's important now that these gains are held and, eventually, extended. But how far might price extend from here? Chris Vermeulen and I have been discussing this subject for the past several months in our Precious Metal Projections videos that are posted here at Sprott Money. Here's a link to our most recent discussion that was recorded early last week:

• https://www.sprottmoney.com/blog/massive-stock-market-meltdown-looming-gold-primed-for-explosive-surge-chris-vermeulen

Finding areas of price resistance is a difficult task in something that is at an all-time high. However, Chris has been projecting for months that the area around $2650 will be challenging for COMEX gold, so keep that in mind over the days ahead. You should also monitor the $2560 level for important support on any pullback.

Silver Market Outlook: Key Resistance and Support Levels

And after charging ahead by nearly $3, or 11%, last week, COMEX silver is set for an interesting week ahead too. The chart below looks great with a new pattern of higher highs following a break of the downtrend that had seen consistently lower lows. However, we do not want to see a post-FOMC reversal later this week. The key level to watch will be $30.50 on the front month, Dec24 contract. A break back below that level would foreshadow a deeper pullback (maybe all the way back to $29.50) before the next move higher begins.

Again, the fun starts at 2 p.m. ET on Wednesday and the market (over)reaction will continue into Thursday. By next week, we'll know how this all turned out and we'll be able to make some predictions for year end. For now, though, my advice is to raise your seatback, stow your tray table, and prepare for some market turbulence and volatility.

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