Market dynamics are shifting following the Federal Reserve’s long-anticipated interest rate cut on Wednesday, September 18, which could lead to a “sell-the-fact” response. Gold has surged to new record highs and is likely to “keep rising,” while equities need to maintain stability, and other commodities may experience additional declines.
Mike McGlone, a senior commodity strategist at Bloomberg, shared this insight on September 19, warning about a “crocodile jaws” chart pattern. This significant 24-year graph highlights a pronounced divergence between the S&P 500 and Bloomberg‘s commodity spot indexes.
McGlone indicates that the yellow metal could help boost the commodities index to better align 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
Gold Price Analysis in Light of the Interest Rate Cut Suggesting a Recession
As of this report, gold is priced at $2,608.72 per ounce after reaching a new all-time high (ATH) of $2,612.71. The precious metal is considered a safe haven in uncertain times, benefiting from growing recession fears and a more relaxed monetary policy.
In essence, the recent 50 basis points rate reduction signifies a more dovish stance by the Federal Reserve. This sets a favorable backdrop for overall investment and financial markets, particularly in contrast to U.S. Treasury Bonds.
On the other hand, this move may also suggest that the U.S. economy is on the brink of a recession. McGlone asserts that the upcoming performance of the stock market will be pivotal in determining whether a recession materializes.
Nevertheless, even a negative macroeconomic outlook may prove beneficial for gold, reflecting how the metal has been excelling amidst uncertainties.
A notable analyst had previously warned of a potentially bearish outlook for stocks and cryptocurrencies following a 50 bps rate cut, as reported by Finbold. In contrast, gold continues on a bullish path toward sustained growth.
Specifically, we consulted OpenAI’s most advanced AI model, o1, to forecast gold prices. The AI employed “PhD-level” reasoning and estimated that the commodity could approach approximately $3,000 per ounce by the end of 2024.
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