Sept 13 (Askume) – Amanda Cooper’s outlook on the day ahead for U.S. and global markets.
What a difference a day makes. Just 24 hours ago, investors agreed that the Fed was unlikely to cut interest rates by half a basis point next week, and that a 25 basis point cut would be consistent with a soft landing.
Two articles published in the Financial Times and the Wall Street Journal overnight by journalists close to the Fed, as well as comments by influential former Fed official Bill Dudley, overturned these views. Now, the Federal Reserve will raise interest rates by either 25 basis points or 50 basis points on September 18, with a ratio of about 50/50.
This 180-degree turn has not yet boosted U.S. stock index futures or launched bids for bitcoin, but instead has pushed gold prices to another all-time high above $2,570 an ounce .
Gold prices have risen nearly 25% this year against the backdrop of potential US interest rate cuts, falling inflation, a weak US dollar and high geopolitical volatility.
Investors are currently in the most bullish position in gold futures trading. Weekly data from the US market watchdog showed that non-commercial investors – a category that can include individual investors, some hedge funds and financial institutions – held 287,558 gold futures contracts, worth about $73 billion at current spot prices.
Central banks are still investing huge amounts of gold
Investors aren’t the only ones adding to their gold reserves. Central banks around the world that hold long-term investments are also rapidly adding to their gold reserves after 2023 – the second-largest official sector investment ever.
After several years of consistent outflows, exchange-traded funds had recorded positive flows for four consecutive months through the end of August.
Since gold pays no interest, it can compete more effectively for investors’ cash when U.S. interest rates fall. In fact, five of the seven times the Fed cut interest rates since 1982 , gold prices rose sharply within six months of the first rate cut.
A potentially clouding factor in this otherwise optimistic picture is the effect of an unstoppable rally on actual consumers of gold. Retail investors, jewellers and industrial users are highly sensitive to price.
But for now, gold continues to shine, especially in view of the possibility of a half basis point rate cut by the Federal Reserve.
Key developments on Friday will provide direction for US markets:
*Import and export prices in August
* Preliminary data on consumer sentiment in September from the University of Michigan
The views expressed are those of the author. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
