The price of gold rose by 0.7%, and is now near a new record high, reached yesterday after the Fed sharply lowered the interest rate.
Yesterday, the Fed moved in a big way to immediately lower borrowing costs for the first time in four years. The Fed’s first interest-rate cut since 2020 slashed its short-term policy rate by 0.5%, bringing it down to a target range of 4.75% to 5%. In addition to this reduction, the FOMC indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year. In all, the dot plot shows the benchmark rate coming down about 2% beyond Wednesday’s move. The FOMC expects the long-run neutral rate to be around 2.9%. Meanwhile, Fed Chairman Powell said the economy remains strong and many labor market indicators are not at worrying levels. Zero-yield bullion tends to be a preferred investment in a lower interest rate environment and during geopolitical turmoil.
According to the CME FedWatch Tool, markets see a 64.9% probability of a 0.25% rate cut at the November meeting and a 50% probability of a 0.50% rate cut in December.
Today, investors will focus on US labor market data. Economists expect that last week the number of initial jobless claims amounted to 230 thousand, as it was a week earlier.
Meanwhile, the new explosions of Hezbollah devices have further increased fears of an escalation of the conflict in the Middle East.