Gold and silver prices have stabilised so far this week after seeing a sharp drop in prices on Friday. With the latest US CPI report and Federal Reserve meeting taking place today however, there could be further price movement to come.

Precious metals saw two announcements that pushed prices down. Firstly, came the news that China ended their 18-month gold reserve buying spree, with no additional purchases in May, and higher prices mentioned as one of the key reasons for the pause. China has been a key driver for gold and silver recently, with consumers following their central bank and buying precious metals as a store of wealth. All eyes will therefore be on China's next report to see if they return to buying gold now that prices have pulled back, or whether they have decided to pause longer term.

China gold reserves

Having already seen prices slip on the news of China’s reserves, gold and silver suffered a further blow after higher-than-expected job figures from the US were released. The suggestion of a strong job market once again put doubts over the Fed’s ability to cut rates in 2024. The US dollar index rallied by nearly 1%, further driving gold and silver lower. September or November still looks the likely time for a cut according to the CME FedWatch Tool, but cuts could slip to 2025 if US economic and inflation data continues to look strong.

The combined result saw gold fall from a peak of $2,388.31/ £1,867.19 to a low of $2,287.41/ £1,797.92 on Friday alone, one of the worst falls for gold in years. Gold has recovered slightly however, and $2,300 has once again proven a strong level of support for the metal, which is now trading at $2,313.

As is usual, silver’s gains – and in this case, losses – were amplified compared to gold, with a sharp drop from $31.54/ £24.67 to fall all the way back to $29.18/£22.91 on Friday. Silver’s recovery has also been less pronounced so far, with $30 not being reclaimed as yet, and trading at $29.40 currently.

Markets have started the week happy to buy gold and silver at lower prices following the Spring rally, but after such a dramatic week, further volatility could be seen. The US CPI report in particular could have a big impact in either direction. The Fed are expected to keep rates unchanged today, but their tone will also prove important for gold and silver this week. If they suggest rate cuts are unlikely this year, the dollar could rally further, putting additional pressure on gold and silver. If they strike a more dovish tone, then this could help gold and silver recover some of Friday’s losses.

Longer-term however the outlook remains positive for gold and silver. Rate cuts are on the way whether they happen in 2024 or not, and with the ECB and others already starting to ease, the Fed will have some justification to follow. Geopolitics remains as fraught as ever, with the EU’s parliamentary elections surprising markets, and resulting in a snap election in France. There is also still plenty of investment demand to help push prices higher, and gold and silver are still up so far year-to-date even after Friday’s dip.