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    • Can gold maintain its momentum after a new interest rate cut?
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    Can gold maintain its momentum after a new interest rate cut?

    Harry Posted on

    According to data released by CME Group, investors expect the probability of a quarter-point interest rate cut at the FOMC meeting planned to be held on Wednesday to be 99.6%.

    In September, the Federal Reserve announced its first interest rate cut in four years, opting to cut interest rates by half a percentage point more than expected, bringing the target rate to 4.75% to 5%.

    Gold prices fell in the short term after the September 19 announcement; but within a few days, the yellow metal rebounded to hit new all-time highs and has continued its upward trend ever since.

    Investors are expecting a small rate cut at the FOMC meeting on Wednesday. (Source: CME Group)

    Since the announcement in September

    Falling interest rates have long been thought to be advantageous to gold by investors because it lowers the “opportunity cost” of owning non-returnable metals as a store of value. As rates fall, bonds become less attractive, and as the rate approaches 0%, the appeal of gold as a store of value increases because it pays no dividends or interest from owning.

    “Long-term investors are now interested in holding gold because rates are lower,” said Goldman Sachs Research analyst Lina Thomas. “At the same time, central bank assets will likely continue to accumulate.”

    This dynamic has been noticed since the Fed’s decision to make a major interest rate cut in September; This decision led to a rise in spot prices to $167, up 6.6% since the announcement.

    What’s happening around the world?

    Dovish behavior is being reported around the world as some investors predict that the world is entering an environment of easing interest rates; This is often the case during periods of expected economic downturn.

    China recently reduced its rate from 3.35% to 3.1%; Along with Canada (from 4.25% to 3.75%), South Africa (from 8.25% to 8%) and Switzerland (from 1.25% to 1%).

    ETF inflows have increased since the summer as gold prices hit all-time highs. (Source: Bloomberg)

    Meanwhile, the World Gold Council reported last week that demand for gold was at an all-time high during the third quarter of this year.

    Bloomberg reported that demand for ETFs and bullion and coin demand has reached the strongest level since Russia invaded Ukraine in February 2022.

    World Gold Council Chief Market Strategist John Reade said that the US deficit is too large and this deficit must be closed to create a stronger economy.

    “This is the primary attraction for the OTC community to increase their gold holdings,” he said.

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    This article is for informational purposes only. The opinions and analyzes contained herein are those of the author and do not constitute financial advice. Jerusalem Post (JPost.com) does not endorse or recommend any investment based on this information. Investors should consider their financial situation, investment objectives, and risk tolerance before making any decisions. It is recommended that you consult a qualified financial advisor. JPost.com is not responsible for any investment losses resulting from the use of this information. The information provided is for educational purposes only and should not be considered trading or investment advice.




    Harry
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