On Wednesday, the Federal Reserve announced a significant interest rate cut of 50 basis points. The September FOMC dot plot also showed lower median interest rate expectations for this year and the next. Consequently, gold prices surged, with spot prices briefly reaching a new high of $2,600 per ounce. However, the Fed’s press conference had an unexpectedly hawkish tone, causing gold prices to exhibit an inverted V-shaped reversal during the session and ultimately close lower.
Silver prices followed suit, initially spiking to a nine-week high of over $31 per ounce after the Fed meeting, but then fell back below $30.
At the press conference, Fed Chair Jerome Powell did not deliver strong dovish signals. Instead, he expressed caution about further aggressive rate cuts, stating that the Fed is not in a hurry to complete rate cuts and will adjust the pace based on data, either accelerating, slowing down, or pausing rate cuts. Powell emphasized that the Fed is confident in achieving a soft landing for the economy while maintaining a strong job market with the adjusted policy rates. He clearly stated that there are no signs of a recession in the U.S. economy, nor is one imminent.
According to the Fed’s dot plot, the interest rate is expected to decrease to 4.375% by the end of 2024, implying another 50-basis-point cut this year. Additionally, further rate cuts of 100 basis points in 2025 and 50 basis points in 2026 are anticipated, ultimately bringing the target rate range down to 2.75%-3.00%.
Nonetheless, the 50-basis-point rate cut by the Fed is substantial. Before the decision was announced, interest rate futures markets had anticipated a 50-basis-point cut, while most Wall Street economists expected a 25-basis-point reduction.
With the increased bets on a 50-basis-point cut by CME derivatives exchange interest rate contracts, speculative traders in New York Mercantile Exchange gold futures and options contracts are actively going long. By the end of August, net long positions in NYMEX gold derivative contracts accounted for over 28% of all open contracts, the highest level since late 2017, significantly exceeding the long-term average of 16.5% and the first half of 2024’s 18.7%.
Rhona O’Connell, a gold market expert at StoneX, noted that the rise in gold prices since early September has once again attracted momentum investors. Given the current financial and geopolitical environment, some investors expect gold prices to rise further. MKS’s Shiels stated that central banks in emerging market countries continue to increase their gold holdings at higher prices, thus bolstering gold’s support level.
