Why are rate cut prospects in the United States so supportive of Gold prices?
The price of Gold has been on a tear in recent weeks, surging by over 22% since the start of 2024 and reaching a new all-time high of $2,531.52 per ounce on August 20th, according to ActivTrades data. Gold prices have also been supported by geopolitical tensions in the Middle East and in Ukraine.
This rally is fueled by growing expectations that the Federal Reserve will cut interest rates in September and continue to do so throughout 2024 and 2025.
Investors are increasingly turning to Gold as a safe haven asset, as evidenced by the surge in holdings of the world's largest Gold-backed ETF, SPDR Gold Trust GLD, which hit a seven-month high earlier this week.
But why are rate cut prospects in the United States so supportive of Gold prices? And how far could Gold go in 2024?
Market Participants Are Pricing a 70% Change of a 25 bps Rate Cut in September
According to the CME FedWatch tool at the time of writing, market sentiment has shifted with investors now assigning a 69.5% probability to a 25 basis point (bps) reduction in the federal funds rate to the range of 5.00% to 5.25% in the next Federal Reserve’s meeting.
But this represents a decrease from the 94.2% probability assigned on July 19th and from the 76% chance recorded only yesterday, suggesting that market participants have become slightly less optimistic about the upcoming rate cut.
Conversely, the odds of a more substantial 50 bps rate cut have risen to 30.5% from 3.9% on July 19th, and 24% on August 19th. This suggests a growing consensus among market watchers that the Fed may need to take more decisive action to address economic concerns.
The Fed is expected to cut interest rates by 25 basis points at each of the remaining three meetings of 2024, according to economists polled by Reuters. This represents a slight increase from last month's poll, which predicted only two rate cuts for the rest of the year.
Several Federal Reserve officials are advocating for a shift in the American monetary policy, signalling a potential pivot away from high interest rate hikes, especially as other developed countries have started to lower their key interest rates.
Mary Daly, President of the Federal Reserve Bank of San Francisco, for example, has expressed the need for a recalibration of monetary policy in light of current economic conditions, as Fed officials are gaining confidence that inflation is heading to their 2% target.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, and former President of the Federal Reserve Bank of Chicago, Charles Evans, have suggested that a rate cut in September might be warranted if the labour market continues to weaken.
Despite some hints from Fed officials that rate cuts are coming, most economists in the poll do not anticipate a rapid series of reductions.
Looking ahead to 2025, the Fed is expected to deliver a 25 basis point cut each in all four quarters. This implies a total of 100 basis points of reductions in 2025. However, market expectations are currently pricing in around 200 basis points of cuts by the end of the third quarter of 2025.
This suggests that markets are more optimistic about the Fed's willingness to ease monetary policy than economists.
Investors and analysts will closely monitor Fed Chair Jerome Powell's speech and comments at the Jackson Hole economic symposium on Friday for insights into the future direction of the US economy.
Understanding the Relationship Between Interest Rates, Gold and the USD
Gold, as a non-interest-bearing asset, becomes more attractive to investors when interest rates are low, as the opportunity cost of holding it compared to interest-bearing assets like bonds decreases.
The relationship between US interest rates, the US dollar, and Gold is interconnected.
When the Federal Reserve lowers interest rates, it typically weakens the US dollar. This occurs because foreign investors may find US-denominated assets less appealing compared to higher-yielding currencies, leading to decreased demand for the dollar. As a result, the US dollar's value decreases, and the supply of dollars in the foreign exchange market increases.
Since Gold is primarily priced in US dollars, fluctuations in the dollar's value can significantly impact Gold demand.
A weaker US dollar makes Gold more attractive to foreign investors seeking to diversify their portfolios away from a potentially depreciating currency - and vice-versa. This inverse relationship between Gold and the US dollar is often referred to as a negative correlation.
Earlier this week, the Dollar Index reached its lowest level since early 2024, overly supporting Gold prices.
How Far Can Gold Go in 2024?
While Gold prices have hit a fresh high yesterday, Aakash Doshi, head of commodities, North America at Citi Research, could see Gold reach $2,600 by the end of 2024 and $3,000 per ounce by mid-2025.
In addition to economic conditions, US monetary policy and geopolitical tensions, traders should also keep an eye on central bank purchases of Gold, as they’ve been sharply rising in recent years.
Following a record-breaking year in 2022 with purchases of 1,082 tonnes of Gold, central banks continued to bolster their Gold reserves in 2023 by adding 1,037 tonnes of Gold. A June survey about the Central Bank Gold Reserves from the World Gold Council suggests that this trend is likely to continue, as nearly one-third of central banks plan to increase their Gold holdings.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
The price of Gold has been on a tear in recent weeks, surging by over 22% since the start of 2024 and reaching a new all-time high of $2,531.52 per ounce on August 20th, according to ActivTrades data. Gold prices have also been supported by geopolitical tensions in the Middle East and in Ukraine.
This rally is fueled by growing expectations that the Federal Reserve will cut interest rates in September and continue to do so throughout 2024 and 2025.
Investors are increasingly turning to Gold as a safe haven asset, as evidenced by the surge in holdings of the world's largest Gold-backed ETF, SPDR Gold Trust GLD, which hit a seven-month high earlier this week.
But why are rate cut prospects in the United States so supportive of Gold prices? And how far could Gold go in 2024?
Market Participants Are Pricing a 70% Change of a 25 bps Rate Cut in September
According to the CME FedWatch tool at the time of writing, market sentiment has shifted with investors now assigning a 69.5% probability to a 25 basis point (bps) reduction in the federal funds rate to the range of 5.00% to 5.25% in the next Federal Reserve’s meeting.
But this represents a decrease from the 94.2% probability assigned on July 19th and from the 76% chance recorded only yesterday, suggesting that market participants have become slightly less optimistic about the upcoming rate cut.
Conversely, the odds of a more substantial 50 bps rate cut have risen to 30.5% from 3.9% on July 19th, and 24% on August 19th. This suggests a growing consensus among market watchers that the Fed may need to take more decisive action to address economic concerns.
The Fed is expected to cut interest rates by 25 basis points at each of the remaining three meetings of 2024, according to economists polled by Reuters. This represents a slight increase from last month's poll, which predicted only two rate cuts for the rest of the year.
Several Federal Reserve officials are advocating for a shift in the American monetary policy, signalling a potential pivot away from high interest rate hikes, especially as other developed countries have started to lower their key interest rates.
Mary Daly, President of the Federal Reserve Bank of San Francisco, for example, has expressed the need for a recalibration of monetary policy in light of current economic conditions, as Fed officials are gaining confidence that inflation is heading to their 2% target.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, and former President of the Federal Reserve Bank of Chicago, Charles Evans, have suggested that a rate cut in September might be warranted if the labour market continues to weaken.
Despite some hints from Fed officials that rate cuts are coming, most economists in the poll do not anticipate a rapid series of reductions.
Looking ahead to 2025, the Fed is expected to deliver a 25 basis point cut each in all four quarters. This implies a total of 100 basis points of reductions in 2025. However, market expectations are currently pricing in around 200 basis points of cuts by the end of the third quarter of 2025.
This suggests that markets are more optimistic about the Fed's willingness to ease monetary policy than economists.
Investors and analysts will closely monitor Fed Chair Jerome Powell's speech and comments at the Jackson Hole economic symposium on Friday for insights into the future direction of the US economy.
Understanding the Relationship Between Interest Rates, Gold and the USD
Gold, as a non-interest-bearing asset, becomes more attractive to investors when interest rates are low, as the opportunity cost of holding it compared to interest-bearing assets like bonds decreases.
The relationship between US interest rates, the US dollar, and Gold is interconnected.
When the Federal Reserve lowers interest rates, it typically weakens the US dollar. This occurs because foreign investors may find US-denominated assets less appealing compared to higher-yielding currencies, leading to decreased demand for the dollar. As a result, the US dollar's value decreases, and the supply of dollars in the foreign exchange market increases.
Since Gold is primarily priced in US dollars, fluctuations in the dollar's value can significantly impact Gold demand.
A weaker US dollar makes Gold more attractive to foreign investors seeking to diversify their portfolios away from a potentially depreciating currency - and vice-versa. This inverse relationship between Gold and the US dollar is often referred to as a negative correlation.
Earlier this week, the Dollar Index reached its lowest level since early 2024, overly supporting Gold prices.
How Far Can Gold Go in 2024?
While Gold prices have hit a fresh high yesterday, Aakash Doshi, head of commodities, North America at Citi Research, could see Gold reach $2,600 by the end of 2024 and $3,000 per ounce by mid-2025.
In addition to economic conditions, US monetary policy and geopolitical tensions, traders should also keep an eye on central bank purchases of Gold, as they’ve been sharply rising in recent years.
Following a record-breaking year in 2022 with purchases of 1,082 tonnes of Gold, central banks continued to bolster their Gold reserves in 2023 by adding 1,037 tonnes of Gold. A June survey about the Central Bank Gold Reserves from the World Gold Council suggests that this trend is likely to continue, as nearly one-third of central banks plan to increase their Gold holdings.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
Plus500 Introduces Extended-hours Trading on Stock-based OTC Products
Transformation in the APAC Trading Landscape and Beyond | FMPS:24
Transformation in the APAC Trading Landscape and Beyond | FMPS:24
As the financial services industry experiences rapid and transformative changes, leading fintech experts and policymakers come together to discuss the present and future of retail trading and the evolving regulatory landscape. Join this insightful session for a forward-looking perspective on the trends, innovations, and trader needs that are shaping the future of offerings on a global scale.
Speakers:
Eric Blewitt, CEO, Investment Trends
Rhys Bollen, Senior Executive Leader, Digital Assets, Australian Securities and Investments Commission (ASIC)
Michael Bogoevski, Head of Institutional Sales, CMC Connect
Karin Setchell, General Manager, Product & Investing Solutions, CommSec
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As the financial services industry experiences rapid and transformative changes, leading fintech experts and policymakers come together to discuss the present and future of retail trading and the evolving regulatory landscape. Join this insightful session for a forward-looking perspective on the trends, innovations, and trader needs that are shaping the future of offerings on a global scale.
Speakers:
Eric Blewitt, CEO, Investment Trends
Rhys Bollen, Senior Executive Leader, Digital Assets, Australian Securities and Investments Commission (ASIC)
Michael Bogoevski, Head of Institutional Sales, CMC Connect
Karin Setchell, General Manager, Product & Investing Solutions, CommSec
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Executive Interviews with Joe Li & Simon Naish | ATFX | FMPS:24
Executive Interviews with Joe Li & Simon Naish | ATFX | FMPS:24
In this Finance Magnates Executive Interview, Joe Li, Chairman at ATFX and Simon Naish, Country Head of Australia at ATFX Connect, discuss ATFX’s strategic growth in the APAC region, particularly focusing on their institutional arm, ATFX Connect. They highlight the importance of Australia as a strategic hub, the challenges of operating in a highly competitive and regulated market, and their plans for regional expansion across APAC. The conversation touches on the integration of advanced technology and multi-asset offerings, the significance of optimal execution tools, and the importance of tailoring solutions to meet the sophisticated demands of institutional clients. They also emphasize their strong regulatory compliance and their commitment to enhancing client experience through innovative tools and infrastructure.
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In this Finance Magnates Executive Interview, Joe Li, Chairman at ATFX and Simon Naish, Country Head of Australia at ATFX Connect, discuss ATFX’s strategic growth in the APAC region, particularly focusing on their institutional arm, ATFX Connect. They highlight the importance of Australia as a strategic hub, the challenges of operating in a highly competitive and regulated market, and their plans for regional expansion across APAC. The conversation touches on the integration of advanced technology and multi-asset offerings, the significance of optimal execution tools, and the importance of tailoring solutions to meet the sophisticated demands of institutional clients. They also emphasize their strong regulatory compliance and their commitment to enhancing client experience through innovative tools and infrastructure.
#fmps #fmps24 #fmevents #ATFXConnect #APACFinance #InstitutionalTrading #FinancialTechnology #MarketExpansion
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Ready to Scale? Regtech in Australia, A Global View | FMPS:24
Ready to Scale? Regtech in Australia, A Global View | FMPS:24
In the effort to elevate Australian fintech on the global stage, RegTech presents a unique and compelling case. Despite the increasing demand for robust compliance solutions, Australia's RegTech sector—ranked third-largest globally—remains underfunded. Join this insightful fireside chat to explore the future of Australia’s RegTech hub and its global potential.
Key discussion points include uncovering the hidden opportunities in RegTech that VCs are overlooking, the necessary steps for increased governmental support, the readiness of the local ecosystem to collaborate across global regulatory regimes, and lessons learned from other leading fintech hubs around the world.
Speakers:
Dickie Currer, National Lead, Tech Australia Advocates
Deborah Young, CEO, The RegTech Association
#fmps #fmps24 #fmevents #RegTech #Fintech #AustralianFintech #GlobalCompliance #TechInnovation
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In the effort to elevate Australian fintech on the global stage, RegTech presents a unique and compelling case. Despite the increasing demand for robust compliance solutions, Australia's RegTech sector—ranked third-largest globally—remains underfunded. Join this insightful fireside chat to explore the future of Australia’s RegTech hub and its global potential.
Key discussion points include uncovering the hidden opportunities in RegTech that VCs are overlooking, the necessary steps for increased governmental support, the readiness of the local ecosystem to collaborate across global regulatory regimes, and lessons learned from other leading fintech hubs around the world.
Speakers:
Dickie Currer, National Lead, Tech Australia Advocates
Deborah Young, CEO, The RegTech Association
#fmps #fmps24 #fmevents #RegTech #Fintech #AustralianFintech #GlobalCompliance #TechInnovation
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Resilience in Trading: From Third Class To World Class | FMPS:24
Resilience in Trading: From Third Class To World Class | FMPS:24
Join Mario Singh, Founder and Chairman of Fullerton Markets, as he shares his life story, highlighting the traits that were required starting without financial knowledge to become a financial and trading expert recognised by world-renowned media like CNBC & Bloomberg.
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Join Mario Singh, Founder and Chairman of Fullerton Markets, as he shares his life story, highlighting the traits that were required starting without financial knowledge to become a financial and trading expert recognised by world-renowned media like CNBC & Bloomberg.
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IBs and Brokers: The Good, The Bad, The Ugly | FMPS:24
IBs and Brokers: The Good, The Bad, The Ugly | FMPS:24
For most brokers, IBs and trading educators are invaluable partners, driving highly targeted traffic from key regions. However, without proper management, these relationships can quickly turn sour. In this session, gain an insider’s perspective on the types of licenses IBs need in APAC, the crucial details in IB agreements that both parties must scrutinize, common disputes between IBs and brokers and effective resolutions, and the pros and cons of transitioning from IB to broker.
Speakers:
Melody Gao, Senior Lawyer, Sophie Grace
James Perry-Keene, Head of Strategic Partnerships, Pepperstone
Christopher Balanzategui, CEO, N3tworx
#fmps #fmps24 #fmevents #IBAgreements #BrokerPartnerships #TradingIndustry #APACFinance #FinancialRegulation
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For most brokers, IBs and trading educators are invaluable partners, driving highly targeted traffic from key regions. However, without proper management, these relationships can quickly turn sour. In this session, gain an insider’s perspective on the types of licenses IBs need in APAC, the crucial details in IB agreements that both parties must scrutinize, common disputes between IBs and brokers and effective resolutions, and the pros and cons of transitioning from IB to broker.
Speakers:
Melody Gao, Senior Lawyer, Sophie Grace
James Perry-Keene, Head of Strategic Partnerships, Pepperstone
Christopher Balanzategui, CEO, N3tworx
#fmps #fmps24 #fmevents #IBAgreements #BrokerPartnerships #TradingIndustry #APACFinance #FinancialRegulation
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