Market movements are underway following the Federal Reserve’s much-anticipated interest rate reduction on Wednesday, September 18, which carries the risk of a “sell-the-fact” reaction. Gold has reached new highs and is poised to “continue climbing,” while stocks must remain stable, and other commodities may see further declines.
Mike McGlone, senior commodity strategist at Bloomberg, provided this observation on September 19, cautioning about a “crocodile jaws” chart pattern. The notable 24-year graph reveals a significant divergence between the S&P 500 and Bloomberg’s commodity spot indexes.
McGlone suggests that the yellow metal could help elevate the commodities index to align more closely with the stock index.
“Sell-the-fact risks appear elevated at the start of the widely anticipated Federal Reserve easing cycle, with implications for gold to keep rising as most commodities fall. My takeaway is the US stock market has an inordinate burden to stay lofty and prevent deflationary dominoes from being toppled by declining materials prices.”
– Mike McGlone
Analysis of Gold Prices as the Interest Rate Cut Indicates a Recession
At the time of this report, gold is trading at $2,608.72 per ounce after achieving a new all-time high (ATH) of $2,612.71. The precious metal is regarded as a safe haven during uncertain times, benefitting from escalating fears of a recession and easing monetary policy.
Essentially, the latest 50 basis points rate cut signals a dovish approach by the Federal Reserve. This creates a favorable environment for overall investments and financial markets, contrasting with United States Treasury Bonds.
Conversely, this action might also hint that the U.S. economy is facing a recession. McGlone posits that the stock market’s performance in the coming weeks will determine if a recession unfolds.
However, even such a negative macroeconomic situation can be advantageous for gold, illustrating how the metal is performing exceptionally well in the face of uncertainties.
An influential analyst had previously alerted about a potentially bearish trend for stocks and cryptocurrencies following a 50 bps rate cut, as reported by Finbold. In contrast, gold appears to maintain a bullish trajectory towards ongoing growth.
Specifically, we consulted OpenAI’s most advanced artificial intelligence (AI) model, o1, for its prediction on gold prices. The AI, utilizing “PhD-level” reasoning, estimated that the commodity could reach approximately $3,000 per ounce by the end of 2024.
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