Gold Sets Fresh All-Time High On Fed Rate Cut, Middle East Tensions

 

Gold Sets All-Time High Above $2,620/oz Amid Falling Interest Rates and Rising Middle East Tensions 

(Bullion News Network) – Gold hit a fresh all-time high this morning, adding one more record to a historic year for the precious metal. Gold reached all-time highs in March, April, May, July, and August, and September is poised to be the metal’s biggest month yet. Market optimism following a jumbo 50 basis point rate cut on Wednesday helped propel gold past the $2,620 line this afternoon, which saw gold gain over $30. Gold began moving late Thursday night as international markets opened. The run was aided by a series of late-night air strikes on Lebanon by Israeli forces, which signals a new wave of aggression in an already tense geopolitical region. 

Gold prices are up $34 on the day as of 3:30 PM CST, and the metal sits right below $2,625 per ounce – the highest gold price ever. A combination of domestic economic signals, namely the 50 bps rate cut by the Federal Reserve earlier this week, and geopolitical tensions are driving gold’s current run. 

That’s ANOTHER all-time high for #gold! Spot price currently sits above $2,616/oz; the metal is up $27.22 on the day.

No confusion here – the Fed’s jumbo 50 bps rate cut is driving gold prices higher. #Silver prices are also up today, making headway above $31 per ounce. pic.twitter.com/dgExa4rxUz

— Hero Bullion (@HeroBullion) September 20, 2024

The Federal Reserve’s choice to cut the federal interest rate by 50 basis points came as a welcome surprise to many traders. It was the first rate cut by the Federal Reserve since 2020, and analysts were divided on whether the Fed would commit to a full half-point cut leading up to Wednesday’s FOMC meeting. Considered by some analysts to be an overly aggressive rate cut, the move signals that Fed Chair Jerome Powell is aiming for a soft landing and will likely attempt to cut rates by 100-200 basis points by the end of 2024. Gold, which has traditionally performed well in low-rate climates, dipped the day of the news before recovering on Thursday. This morning, traders pricing in the rate cut pushed gold futures to record heights. 

Heightened tensions in the Middle East also likely played a role in today’s record-breaking gold performance. Late last night, Israel began a series of air strikes on Lebanon in their ongoing war against Hezbollah, an Islamic paramilitary organization and Lebanese political party. The offensive continued into the morning, despite attempts at de-escalation spearheaded by the United States and  Great Britain. The ongoing threat that the war poses to geopolitical stability in the Middle East increases the appeal of safe haven assets like gold, which tends to retain value during periods of conflict and war. 

Together, a historic rate cut in the United States and an increasingly volatile situation in the Middle East pushed gold prices to yet another all-time high in 2024. 

Gold Bulls Eye the Fed, Geopolitical Tensions For Cues on What Comes Next

Moving into Q4 2024, domestic monetary policy and foreign geopolitical tensions will play major roles in determining where precious metal prices move. The current climate of falling interest rates bodes well for gold bullion – as long as the Fed makes good on its objective of achieving a soft landing and securing lower rates to begin 2025. Tensions in the Middle East show few signs of slowing, and the downside risk to supply chains posed by a protracted Israel-Hezbollah war also offers tailwinds to gold price action jolted by a dovish Federal Reserve. 

As has been the case for most of 2024, Federal Reserve Chair Powell was cautious to give journalists any signal as to when – and by how much – rate cuts will next drop. When asked when markets can expect to see more 25-50 bps rate cuts, Powell had this to say at a press conference: 

We’re going to be making decisions meeting by meeting based on the incoming data, the evolving outlook, the balance of risks. If you look at the SEP, you’ll see that it’s a process of recalibrating our policy stance away from where we had it a year ago, when inflation was high and unemployment low, to a place that’s more appropriate given where we are now and where we expect to be. And that process will take place over time […] We know, as I mentioned in my remarks, that the actual things that we do will depend on the way the economy evolves. We can go quicker if that’s appropriate, we can go slower, if that’s appropriate. We can pause if that’s appropriate.

Most analysts interpret the FOMC’s aggressive 50 bps rate cut as evidence that the Committee had committed to cutting rates consistently in its next two meetings before the end of 2024. CME Group’s interest rate predictive model, FedWatch, projects that the federal target funds rate will likely decrease to 400-425 bps at the Fed’s December meeting, which would be a total cut of 125 basis points. If rates continue to fall, gold prices are likely to climb. 

Expect geopolitical conditions, especially in the Middle East, to play a major role in where gold prices move heading into the final three months of 2024. 

Another big question mark for traders is the upcoming presidential election in the United States. The controversy-filled race between former President Donald Trump and Vice President Kamala Harris will have a profound impact on markets, especially considering Mr. Trump’s promises of high tariffs on foreign goods. The outcome of this election – and the events leading up to it – could impact the appeal of safe haven assets like gold and silver.