The markets are moving after the Federal Reserve’s anticipated interest rate cut on Wednesday, September 18, with a “sell-the-fact” risk. Gold made new highs and could “keep rising,” while stocks need to hold tight, and other commodities may keep falling.
Mike McGlone, senior commodity strategist at Bloomberg, shared this insight on September 19, warning of a “crocodile jaws” chart pattern. Notably, the 24-year chart shows a clear divergence between the S&P 500 and Bloomberg‘s commodity spot indexes.
According to McGlone, the yellow precious metal could push the commodities index upwards to meet with the stock index.
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“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 as the interest rate cut signals a recession
As of this writing, gold trades at $2,608.72 per ounce after making a new all-time high (ATH) of $2,612.71. The leading commodity is a known safe haven under times of uncertainty, benefiting from surging recession fears and monetary easing.
Essentially, the recent 50 basis points interest rate cut suggests a dovish monetary policy from the Federal Reserve. Therefore, this creates a favorable scenario for overall investments and finance markets against United States Treasury Bonds.
On the other hand, this move could also suggest the U.S. economy is in a recession. McGlone believes the stock market behavior in the following weeks will dictate if the recession scenario will play out.
Yet, even such a negative macroeconomic event can benefit gold, explaining how the metal is overperforming even amid uncertainties.
A prominent analyst had already warned of a potential bearish scenario for stocks and cryptocurrencies following a 50 bps rate cut, as Finbold reported. As for gold, most scenarios point to the same bullish direction of sustained growth.
In particular, we asked OpenAI’s most advanced artificial intelligence (AI) model, o1, for a gold price prediction. The AI, with a “PhD-like” reasoning, forecasted the commodity would trade at around $3,000 per ounce by the end of 2024.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
