Gold climbs to record high after Fed makes first rate cut of 2020 | commodities

Gold retreated from a record high after Federal Reserve Chairman Jerome Powell signaled to policymakers that they are in no rush to cut interest rates aggressively after the US central bank’s half-percentage-point cut on Wednesday.

Gold, which tends to benefit from lower rates, rose as much as 1.2 percent to $2,600.16 an ounce before erasing gains after Powell said no one should see this as a ” new rhythm” at his press conference. Projections released after the Fed’s two-day meeting showed a narrow majority — 10 of 19 officials — favored cutting interest rates by at least an additional half point over the central bank’s two remaining meetings this year.

The start of the Fed’s rate-cutting cycle means interest rates are falling and the dollar will start to fall, said Will Rhind, founder of GraniteShares Advisors, whose investment firm manages a gold-backed exchange-traded fund.

“It’s good for gold,” he said in an interview. “The next push for gold will be if there is a sense that we are heading into recession and the fear factor kicks in and people have to start buying gold as a hedge.”

“The Fed moved this meeting aggressively in response to its dual mandate, but it does not indicate that the Fed expects a recession,” said Jay Hatfield, chief executive of Infrastructure Capital Advisors. “We think gold is likely to grind higher as global interest rates continue to fall. So we would be inclined to add “long positions in gold.

Spot gold was down 0.7 percent at $2,552.77 an ounce at 4:12 p.m. in New York.

Gold prices have exploded dramatically this year, rising more than 24% to successive records. While the rise since early 2024 has been supported by demand from emerging markets – particularly from central banks and Asian consumers and investors – the focus in recent months has shifted squarely on the Fed and the outlook for the US economy. Non-yielding bullion typically benefits in a low-rate environment, and recession worries tend to drive investors to seek safety in gold.

Gold, Treasuries and the S&P 500 have typically risen as the Fed begins to cut interest rates, according to a Bloomberg News analysis of the last six easing cycles since 1989.

Wednesday’s rate cut caps a period of flux in the gold market, as some analysts pointed to a return to more traditional trading patterns and, in particular, gold’s long-standing tendency to rise and fall in the opposite direction of real yields . That relationship has broken down in recent years as gold has remained historically high even as rates have risen – with prices supported instead by huge purchases by central banks as well as rising demand from investors and consumers from Asia.

In recent months, there have been signs that Western investors have jumped back into the gold market as bets mounted that the Fed was about to pivot. Holdings in gold-backed ETFs have risen in ten of the past 12 weeks, while long gold positions in Comex gold futures are nearing their highest in four years.

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First publication: September 19, 2024 | 19:08 IST