Gold and Silver Rally as Fed Rate Hike Expectations Cool

Spot gold climbed 1.92% to $4,471.10 an ounce, while silver rose 2.49% to $66.830. The shift in market sentiment followed Waller’s indication that he would favor holding rates steady if upcoming inflation data show sustained cooling. Consequently, the probability of a September rate hike dropped to 50.4%, down from 63.2% just one day prior, while the 10-year Treasury yield slipped to 4.77%.

Despite the rally, the economic backdrop remains complex. The ISM services index rose to 55.4 in August, with input prices reaching their highest level since October 2022. This divergence between easing rate expectations and persistent service-sector inflation shifts the focus to Friday’s nonfarm payrolls report and the September 11 CPI release. Investors are also weighing geopolitical tensions, as ongoing conflict in the Strait of Hormuz keeps crude oil prices near six-week highs, creating a tug-of-war between defensive demand for bullion and persistent inflationary pressure from energy costs.