Precious Metals Retreat As December Rate Cut Odds Shift Amid Strong Labor Data

Bullion markets experienced a pullback on Thursday as fresh employment figures prompted investors to reassess the probability of another Federal Reserve interest rate cut in December. November-dated Comex Gold contracts fell $21.20, or 0.52%, settling at $4,056.50 per troy ounce, while November Silver futures dropped 54.30 cents, or 1.07%, to $50.247 per troy ounce.

Labor Market Signals Create Policy Uncertainty

The U.S. Bureau of Labor Statistics released robust employment data that caught market attention. September non-farm payrolls expanded by 119,000 positions, exceeding the 50,000 forecast and marking a rebound from August’s revised decline of 4,000 jobs. This represents the strongest monthly gain in five months, suggesting underlying labor market resilience. However, the unemployment rate ticked up to 4.4% from 4.3%, revealing a more nuanced picture beneath the headline job creation figures.

Average hourly earnings remained flat year-over-year at 3.8%, while weekly jobless claims retreated by 8,000 to 220,000, with the four-week moving average settling at 224,250. Notably, this represents the final employment report before the Federal Reserve’s December 9-10 policy meeting, as the Labor Department will forgo releasing October’s jobs data.

Federal Reserve’s December Dilemma

The policy path forward remains genuinely uncertain. When the Federal Reserve implemented its second 2025 rate cut on October 29, officials reduced borrowing costs by 25 basis points, bringing the target range to 3.75%-4.00%. However, minutes from October’s Federal Open Market Committee gathering, released Wednesday, disclosed notable divisions among voting members regarding December’s direction.

Two dissenting voices complicated the consensus: one policymaker advocated for a larger 50-basis-point reduction, while another preferred maintaining rates unchanged. Despite these tensions, all members reaffirmed commitment to the Fed’s dual mandate of maximum employment and price stability anchored at 2%.

Federal Reserve Chair Jerome Powell particularly underscored that December’s decision remains “not a foregone conclusion,” tempering market expectations heading into the final months of 2024.

Market Positioning Reflects Cooling Expectations

The precision of market expectations has shifted materially. CME Group’s FedWatch Tool currently shows investors assigning just a 39.4% probability to a 25-basis-point reduction when the Federal Reserve convenes next month.

This cooling conviction matters substantially for precious metals. Gold and silver typically benefit from lower interest rate regimes, as reduced yields on bonds and cash equivalents enhance the relative attractiveness of non-yielding assets. Thursday’s pullback reflects investors’ recalibration as they weigh stronger-than-expected employment creation against the dual challenge of persistent wage pressures and lingering inflation concerns.

Analysts note that while the employment report does signal some labor market softening, its delayed release timing may limit its influence on December deliberations. The real volatility for bullion will likely emerge as officials synthesize this data with inflation trajectories and financial conditions heading into their crucial mid-December gathering.