Record Gold Price Nears $2600 as Betting Leaps on Half-Point Fed Cut
Monday, 9/16/2024 15:05
GOLD PRICES continued to hit fresh record highs on Monday, rising within $11 per ounce of $2600 as speculators sharply increased their bets on the Federal Reserve starting to reduce US Dollar interest rates from their current 2-decade high with a dramatic half-point cut in this Wednesday's policy decision,
writes Atsuko Whitehouse at BullionVault.
Spot gold prices edged up a further $3.60 per Troy ounce from Friday's new record to touch $2589.66 on Monday morning, also extending the precious metal's run of all-time highs in most other major currencies.
Today's fresh gold price records came as expectations that the US central bank
will cut rates by a half-point rather than a quarter-point at its September meeting leapt towards 2-in-3 positions according to the CME derivatives exchange's
FedWatch tool, up from Friday's level of 1-in-2.
After the European Central Bank and the Bank of England started their rate-cut cycles this summer with a smaller quarter-point reduction each, "A 50 basis points cut to the Federal funds rate would likely give gold a bigger boost," says the latest note from German refining group Heraeus.
"But either way, a lower interest rate environment tends to be positive for gold as the Dollar is expected to weaken and the opportunity cost of holding gold as a non-yielding asset falls."
The Dollar Index – a measure of the US currency's value versus its major peers – fell to an 8-month low as gold prices rose, while 10-year US Treasury yields, the benchmark rate for government as well as many finance and commercial borrowing rates, fell to its lowest in 14 months.
Over the past 7 rate-cutting cycles from the US Fed, the price of gold has risen all but once across the following 6 months, making an average gain of 7.9%.
"Gold's consolidation over 10 days or so laid the foundations for higher prices with a bull run starting last Wednesday," says Rhona O'Connell at brokerage Stone X Group.
"$2600 is in sight."
"Gold
could reach $3000 per ounce by mid-2025," says Aakash Doshi, head of commodities at US financial giant Citigroup's research division, explaining that gold will be driven by US interest rate cuts, strong demand from exchange traded funds, and demand for large gold bars held in secure storage.
Among
gold-backed ETF investment trusts, the giant GLD fund grew 0.9% last week, reaching its largest size since early January, while No.2 gold ETF the IAU also saw its 4th consecutive week of gains, enjoying its largest inflows since mid-August.
The giant SLV silver-backed ETF also marked its 4th consecutive weekly inflow, its largest since the end of June.
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Prices for silver, which finds nearly 60% of its annual demand coming from industrial uses, rose 0.6% to $30.91 per ounce by London lunchtime after surging 10% last week.
The strength of silver pushed
the Gold/Silver Ratio – which tracks the relative prices of these two formerly monetary metals – down further to just above 83, its lowest value for gold versus silver in nearly two months.
The FOMC meeting concluding on Wednesday will also bring the policy committee's new quarterly 'dot plot' forecasts, showing where each member expects growth, inflation and interest rates to move over the next few years.
In the last forecasts in June, the average projection for end-2024 was hiked to 5.1%, but today the market consensus for the Fed rate in December was the lowest in over 7 months at 4.18%.
"I know what I'd be pushing for," says William Dudley, formerly president of the New York Fed – the engine-room of interest-rate policy implementation – saying that
the risks to US jobs are now greater than the threat of inflation.
"I think there's a strong case for 50 [basis points]" to be cut on Wednesday.
Global stock markets were mixed, adding only 0.1% to the EuroStoxx 600.
While the Tokyo and Chinese stock markets were closed on Monday due to national holidays, the Japanese Yen strengthened against the US Dollar to its highest level since July 2023 ahead of the Bank of Japan's monetary policy announcement on Friday.
The Bank of England then sets UK Pound policy rates on Thursday, the morning after the US Fed's decision and dot plot forecasts.
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