Gold didn’t see a bullish price reaction to the U.S. Federal Reserve’s decision to cut key interest rates for the first time in a decade, but that doesn’t come as a big surprise and gold still has lots of reasons to climb.
Indeed, after gold futures settled lower Thursday, prices for the metal rallied past $1,450 an ounce in electronic trade to levels not seen since 2013 when U.S. President Donald Trump tweeted[1] that the U.S. would implement new tariffs on China starting on Sept. 1. That fed demand for haven gold.
Earlier, the U.S. central bank on Wednesday cut its benchmark interest rate by a quarter percentage point, marking the first reduction since the 2008 financial crisis. Gold typically attracts buyers in a low interest-rate climate.
However, Fed Chairman Jerome Powell, in a press conference that followed the announcement, said he didn’t see the move as the “beginning of a lengthy cutting cycle.”[2]
Read: Here’s how the Fed could rattle the market instead of calm it down[3]
“The Fed’s, and Chairman Powell’s, careful attempts to put the rate cut outside the context of an easing policy delivered a body blow to gold and equities,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.
On Thursday, the most-active December gold futures[4] contract GCZ19, +0.97%[5] traded as low as $1,412.10 an ounce, the lowest intraday level in about a week. It pared some of those losses to settle at $1,432.40, down $5.40, or 0.4%.
Despite the Wednesday afternoon’s steep decline, Lundin said that “the weeks ahead will show the Fed beholden to the whims of Wall Street once again, as the U.S. stock market will eventually throw a temper tantrum if another rate cut isn’t forthcoming.”
“The bottom line is that not just the U.S. but the entire developed world is in an easing trend, and the resulting ultra-low-rate environment, along with expanding negative interest rate bonds, will be extremely bullish for gold and silver,” said Lundin.
So “gold may experience a corrective trend but as long as it remains near or above $1,400 for some time, it will work off its overbought status and eventually begin climbing once again,” he said.
In a unanimous decision Thursday, the Bank of England held its key interest rate[6] at 0.75% and acknowledged economic growth was at risk. If Brexit is smooth and the global economy recovers, it said it would increase rates at a “gradual pace and to a limited extent.”
The “Fed is just the latest central bank to lower rates. No bank, in fact, is pursuing higher rates right now, the first time in six years we’ve seen this,” said Frank Holmes, chief executive and chief...