Gold hits record highs

16 Eylül 2024

Today’s market analysis on behalf of Samer Hasn, Senior Market Analyst at XS.com

Gold hits record highs as half-point rate cut probability increases

Gold is touching more record highs today at $2,589 per ounce in spot trading.

The bullish trend for gold continues as the probability of the Fed cutting rates by half a percentage point at its meeting this week gains momentum, making this outcome the most likely scenario.

September 30 Day Fed Fund futures (ZQU4), which are used as a barometer for market expectations of the Fed’s next move this week, have been in a constant rush of traders throughout the past week, with open interest hitting a record high of -293,413.

This has pushed up the prices of these contracts and appears to have contributed to strengthening the half-point cut hypothesis and ultimately fueling gold’s gains.

The moves came despite stronger-than-expected core and producer price inflation data seen last week, but markets see no alternative to multiple rate cuts this year given the weak labor market. Inflation expectations for the coming year are also favorable to this narrative, falling from 2.8% to 2.7% year-over-year, according to the University of Michigan survey.

The probability of a 50-bps cut is 59% versus 41% for a 25-bps cut, according to the CME FedWatch Tool. The probability of a 1% or greater cut by the end of this year’s meetings is 93%.

With the high sentiment around rate cuts, the yield on the two-year Treasury note, which is highly sensitive to interest rate changes, hit a two-year low of 3.555%, helping gold extend its gains.

The yellow metal could also benefit from the apparent assassination attempt on Republican presidential candidate Donald Trump over the weekend, as the assassination attempts could be seen as a boost to his chances of winning a second term.

Gold hit a new record high in the first assassination attempt two months ago. I think Trump’s return to the White House seems to be linked to economic and political uncertainty, which could explain the increased appeal of the safe haven.

The assassination attempt had a political background, as the FBI said. The shooter was a supporter of Ukraine in its war and had previously called for increased support, as he mentioned in an interview with The New York Times over a year ago. This could explain his motives, as it is possible that Trump may cut off support for Ukraine.

 

Zaid Barem / YMM