Gold Spikes $30 to New $2600 Record as the Fed Cuts 50 Basis Points
Wednesday, 9/18/2024 17:23
The PRICE of GOLD leapt Wednesday as the US Federal Reserve cut its key interest rate by 50 basis points and slashed its year-end and 2025 forecasts for the cost of borrowing, briefly touching $2600 per Troy ounce in spot-market trade.
The price of gold also rebounded in other major currencies but rose less quickly, trading shy of Monday's new all-time highs for Euro and UK investors, before the precious metal pulled back to new 4-session lows at $2564.
Betting on interest-rate futures had said the Fed Funds rate would most likely be
cut by 50 basis points by Jerome Powell and the FOMC from its 2-decade high of 5.33% at their September meeting.
But while several former Fed members said they feared
the US central bank was already "late" to cutting rates, economists' consensus pointed to a 25 basis points cut instead – widely noted as
a rare if not unique split from market opinion going into a Fed rate decision.
"Half the market is wrong" about today's Fed decision said strategist Nicky Shiels at Swiss precious metals refining and finance group MKS Pamp ahead of today's announcement, looking at the split.
Alongside the surge in betting on a half-point cut in the CME derivatives exchange's interest-rate contracts, speculators in Comex gold futures and options contracts raised their bullish betting on the precious metal's price dramatically in the weeks preceding today's announcement.
As a proportion of all Comex gold derivatives contracts now open, the bullish bets held by speculative traders – minus that same group's bearish bets – peaked above 28% as gold prices broke through $2500 per Troy ounce at the end of August.
That's the heaviest net bullish betting by Managed Money traders as a percentage of open interest since late-2017, and it contrasts with both the long-term average of 16.5% and the first-half 2024 level of 18.7%.
"The gain in gold since the start of September [has brought] momentum traders on board again," says a note from bullion-market specialist Rhona O'Connell at brokerage StoneX, "[plus] some fresh interest from those expecting more gains given the financial and geopolitical environment."
While physical demand in the major markets of China and India looks weak in the face of gold's new all-time highs, central banks in emerging economies "are still adding gold at higher prices," says Shiels at MKS, "albeit at slower long term pace [but still] helping to establish higher floors."
Further ahead, the Fed's FOMC team now say on average that interest rates will end this year at 4.4% before falling another 1 percentage point in 2025, both down sharply from their
interest-rate projections in June's 'dot plot' graph.
With gold falling back to trade lower for the day after that brief spike to touch the $2600 level, the price of silver also reversed its post-Fed jump.
After touching a new 9-week high above $31 per Troy ounce,
spot silver prices headed into the end of US Comex derivatives trade with a dip below $30.
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