Gold and U.S. stocks moved in the same direction on Friday, as a weaker economy reinforced expectations that the Federal Reserve will resume its rate-cutting initiative next week.
Futures on December gold delivery peaked at $1,520.90 a troy ounce, representing a daily gain of almost 1% on the Comex division of the New York Mercantile Exchange. The most actively-traded futures contract is currently trading above $1,515/oz, where it was on track for its highest settlement since Sept. 24.
Silver futures posted even bigger gains, rising 46 cents, or 2.6%, to $18.27/oz. The grey metal is also trading at monthly highs.
Gold’s premium over silver plunged 1.7% on Friday to 82.88. That’s how many ounces of silver are needed to purchase one ounce of gold.
Gold rose in lockstep with equities Friday as traders raised bets that the Federal Reserve will slash interest rates next week.
Lower interest rates provide equities with additional liquidity, prolonging a bull market that has stretched on for more than a decade. For gold, looser monetary policy ensures that real interest rates remain firmly capped below inflation.
Over the past 12 months, yields on government bonds have declined both nominally and in a real sense, as investors loaded up on Treasurys to safeguard against ailing economic health. Gold is likely to remain extremely bullish so long as inflation is higher than interest rates.
Despite some internal dissent, the Federal Reserve slashed interest rates in September for the second time in as many meetings. Markets anticipate a further reduction of up to 50 basis points before 2019 is over. Fed Fund futures prices already imply a 93.5% likelihood of a rate cut next Wednesday when policymakers wrap up their two-day meetings.