Gold Trading at $2575 as Fed Gives in to Futures Market Forecasts
Thursday, 9/19/2024 15:35
GOLD held unchanged for the week so far in London on Thursday, trading $25 per ounce below last night's new all-time spot-market high of $2600 as Western stock markets also rebounded after falling on yesterday's decision by the Federal Reserve to slash Dollar interest rates by 50 basis points, just like the futures market had predicted.
That view contrasted with the 'expert' opinion, in which only 9 out of 113 economists surveyed by Bloomberg predicting such a deep reduction at Wednesday's September Fed meeting.
Financial conditions in the USA were last week easier than any time since February 2022 – eve of Russia's all-out invasion of Ukraine, and when the Fed had only just begun its rate-hiking cycle in the face of the strongest consumer-price inflation in 4 decades –
according to Federal Reserve data.
Bullion prices spiked on the Fed's decision, briefly touching a
new spot gold record at exactly $2600 before falling back over $50 per Troy ounce as US stock markets also dropped into Wednesday's finish, before also rallying sharply on Thursday.
"We don't think we're behind [the curve]," said Fed chairman Jerome Powell in his
post-meeting press conference Wednesday, countering
comments from now ex-Fed members about waiting too long to start this rate-cutting cycle.
In fact, "You can take this as a sign of our commitment not to get behind," Powell went on, because slower data from the labor market "bears watching, and we’re watching."
Cutting overnight rates from a ceiling of 5.50% to 5.00% per annum, the US central bank's policy team also reduced their consensus forecast for year-end and end-2025 interest rates, cutting their 'dot plot' projections by 0.7 percentage points on average.
That put the Fed's own Christmas 2024 rates expectation down at 4.4%, still more than 25 basis points above the futures market's consensus today. But yesterday's reduction in the Fed's year-end rate forecast marked the 4th time in 4 dot-plot updates that the US central bank sharply revised its projection to match more closely the futures market's consensus betting.
Looking ahead, "It feels to me the neutral rate is probably significantly higher than it was" before the Covid pandemic starting in 2020, Powell also said, referring to the idea of a rate which neither stimulates nor restricts the economy.
But while the Fed's consensus projection for end-2025 interest rates was cut yesterday to 3.4%, trading in the
CME futures market today predicted a rate of 2.93% fifteen months from now, almost another 50 basis points lower.
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In contrast to the Fed, the Bank of England today held UK interest rates unchanged after surprising the markets with its first cut in August.
With the US Dollar already falling on its trade-weighted index to new 14-month lows, Sterling rose to its highest Dollar FX rate since March 2022, and it pushed the Euro down to 3-week lows beneath 85 pence.
That left
the UK gold price in Pounds per ounce trading at £1945, down 1.2% from Monday morning's new all-time high, while Euro gold prices rallied to €2316, only 0.8% off this week's new peak.
Silver priced in Dollar meantime joined gold in trading dead-flat from last weekend, rising back to $30.75 per Troy ounce as the dearer precious metal held at $2575.
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