Following the decision of the U.S. Federal Reserve on Wednesday afternoon to maintain its benchmark interest rate unchanged and uphold its projection of three rate cuts for the year, the reaction in the gold market initially appeared subdued. However, as time passed, prices for the precious metal surged towards fresh record highs, signaling a significant response from investors.
The decision by the Fed to keep its benchmark rate steady within the range of 5.25%-5.5%, in line with expectations, prompted what Brien Lundin, editor of Gold Newsletter, described as “big sighs of relief” from the markets. This reaction was largely due to the fact that the expected rate cuts for the year remained at three instead of dropping to two, as some had speculated. Lundin noted that this decision by the Fed raises questions about whether these anticipated rate cuts, initially falling below investors’ expectations at the beginning of the year, would be condensed into a shorter timeframe. Such a scenario could potentially amplify their impact on the economy and financial markets.
In electronic trading on Wednesday afternoon, April gold reached $2,185.10 an ounce, signaling a notable uptick in prices. While the all-time settlement record high for a most-active contract was established on March 11 at $2,188.60, the intraday record stood at $2,203 from March 8. The fact that gold prices continued to climb despite the Fed’s decision underscores the strong demand and investor sentiment towards the precious metal.
Will Rhind, chief executive officer and founder of GraniteShares, shed light on the factors driving the surge in gold prices. He attributed the rise to diminishing expectations of real interest rates, which increases the attractiveness of non-yielding assets like gold. With declining yield expectations and the market hovering around all-time highs, investors have shown renewed interest in assets such as gold to diversify their portfolios and hedge against potential market volatility.
Meanwhile, Lundin highlighted a critical aspect regarding the timing of expected rate cuts. He pointed out that their proximity to the presidential election virtually guarantees their occurrence close to the election date. This situation could potentially raise doubts about the Fed’s impartiality and its independence from political influence. The implications of such doubts may reverberate later, particularly if there is a change in the White House, adding an additional layer of uncertainty for investors and financial markets alike.