Morning Bid: A golden Fed cut
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[September 13, 2024] (Reuters)
- A look at the day ahead in U.S. and global markets by Amanda Cooper.
What a difference a day makes. Just 24 hours ago, investors were coming
to terms with the idea that a half-point rate cut next week from the
Federal Reserve was unlikely and a quarter-point drop was much more in
line with a soft-landing scenario.
A couple of articles by closely followed Fed correspondents in the
Financial Times and the Wall Street Journal overnight, along with
comments from influential former Fed official Bill Dudley, have been
enough to flip those assumptions on their head. It's now pretty much
50/50 as to whether the Fed goes 25 basis points or 50 on Sept. 18.
This 180-switch hasn't puffed up U.S. stock futures or given bitcoin a
bid so far, but rather has pushed gold to yet another record high above
$2,570 an ounce.
Gold has gained nearly 25% in value this year, fuelled by a heady
cocktail of the prospect of lower U.S. interest rates, falling
inflation, a weaker dollar and a highly volatile geopolitical backdrop.
Investors are currently sitting on one of their largest bullish
positions in gold futures on record. Weekly data from the U.S. markets
regulator shows non-commercial investors - a category that can include
individual investors, some hedge funds and financial institutions - hold
287,558 gold futures contracts, worth around $73 billion based on the
current spot price.
CENTRAL BANKS STILL ADDING GOLD
It hasn't just been skittish investors adding to their rainy-day bullion
holdings either. Central banks around the world, which tend to be in it
for long-term, are still adding gold to their reserves at breakneck
speed following 2023's splurge - the second highest for the official
sector on record.
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A jogger runs past the Federal Reserve building in Washington, DC,
U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo
Exchange-traded funds have recorded positive inflows for four
straight months to the end of August after years of almost
unmitigated outflows.
Because gold does not bear any interest of its own, it can compete
more effectively for investor cash when U.S. rates are falling. In
fact, in five out of the last seven Fed easing cycles going back to
1982, gold has rallied in the six months following the first cut.
The possible dull element in this otherwise glittery picture is the
impact of an seemingly unstoppable rally on actual consumers of
gold. Retail investors, jewelers and industrial users are highly
price sensitive.
But for now, particularly with a juicy half-point cut in the offing
from the Fed now believed to be more likely, gold is retaining its
shine.
Key developments that should provide more direction to U.S. markets
later on Friday:
* August import/export prices
* University of Michigan Sept preliminary consumer sentiment
(Reporting by Amanda Cooper; Editing by Alex Richardson)
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