A Fed gold cut by Reuters

(Reuters) – A look at the day ahead in US and global markets by Amanda Cooper.

What a difference a day makes. Just 24 hours ago, investors had come to terms with the idea that a half-point interest rate cut next week from the Federal Reserve was unlikely, and a quarter-point cut was much more in line with a scenario soft landing.

A few articles by closely watched Fed correspondents in the Financial Times and Wall Street Journal overnight, along with comments from former Fed official Bill Dudley, were enough to overturn their assumptions. It’s now almost 50/50 whether the Fed goes 25 basis points or 50 on September 18.

This 180 switch has so far not inflated US stock futures or given bitcoin a bid, but rather pushed gold to yet another record high above $2,570 an ounce.

Gold has gained nearly 25% in value this year, fueled by a heady cocktail of the prospect of lower US interest rates, falling inflation, a weaker dollar and a highly volatile geopolitical context.

Investors are currently in one of the most bullish positions on record. Weekly data from the U.S. markets regulator 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, on current spot price basis.

CENTRAL BANKS ARE STILL ADDING GOLD

It wasn’t just angry investors who added to their bullion holdings on rainy days. Central banks around the world, which tend to be in it for the long term, are still adding gold to their reserves at breakneck speed after the 2023 splash – the second-highest on record for the official sector.

Exchange-traded funds posted positive inflows for four straight months through the end of August, after years of largely unmitigated outflows.

Because gold carries no interest of its own, it can compete more effectively for investors’ money when U.S. rates fall. In fact, in five of the last seven Fed easing cycles since 1982, gold rose in the six months after the first tapering.

The possible dull element in this otherwise bright picture is the impact of a seemingly unstoppable rally on actual gold consumers. Retail investors, jewelers and industrial users are very price sensitive.

But for now, especially with a juicy half-point cut early on from the Fed thought more likely, gold is keeping its shine.

Key developments that should provide more direction for US markets later Friday:

* August import/export prices

* University of Michigan September Preliminary Consumer Sentiment