Gold’s remarkable rally has continued this week as investors position themselves for an interest rate cut by the central bank amid a slowing jobs market.
The gold price was last trading at $3,685 after trading a few dollars higher at a fresh record high overnight.
With some investment banks calling for a 50 bps rate cut this week to stave off the negative impacts of a soggy US jobs market, gold bugs have had a field day, and the metal has broken to fresh highs even as stocks rally.
“The market has pushed gold to all-time highs for a reason, and while the exact reason could fall on any one of many macro debates and concerns being posed by market players, the fact that gold is uncorrelated from the S&P500 and US Treasuries and is a portfolio hedge that is working well makes the investment case highly attractive,” explained Chris Weston Head of Research at Pepperstone.
Weston continued to explain that, although numerous factors influenced the gold price, the Federal Reserve’s approach to monetary policy remained the primary factor at play.
“The fact that gold has been so strong, the pullbacks limited, and contained, and the rate of change has picked up also brings in a lot of systematic buyers, and we can’t dismiss the importance of the flow-based effects pushing gold higher. Of course, the FOMC meeting does pose risk to gold positioning, but the risk to US growth is skewed to the downside, and the market is sensing a growing risk that the Fed has miscalculated its views on economics and are progressively behind the curve on policy – A Fed that may be forced to take rates towards a neutral setting far more urgently again puts gold as a great place to be invested and would subsequently benefit from any rise in concerns that the Fed may have left rate cuts a little too late.”