Gold hits record high as Fed cuts interest rates
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Gold rallied to a record high as the Fed commenced its easing cycle. Broader commodity markets were mixed as they pondered the impact of the rate cut.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Gold rallied to another record high after the Fed cut rates by half a percentage point. The precious metal surged past USD2,600/oz as the market viewed the move as a pretext to an aggressive rate cut cycle. This was supported by lower Treasury yields and a weaker USD. However, gold gave up those initial gains to end the session lower after Chair Powell signalled policymakers aren’t in a rush to aggressively lower interest rates, stating no one should see this as a new pace. Even so, it’s unlikely to stop the inflow of investors as the Fed embarks on this rate cutting cycle.
Crude oil inched lower as demand concerns offset rising tensions in the Middle East. US government data showed that gasoline demand fell below 9mb/d last week, while jet fuel consumption weakened for the third straight month. This was despite US commercial crude oil inventories falling 1,630kbbl over the same period. This brought them to their lowest level in almost a year. Inventories at Cushing, the pricing point for WTI, have hit tank-bottom levels, EIA data showed. Crude oil prices did briefly edge into positive territory after the Fed announced its rate cut. While the 50bp cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates. The profile of cutting suggests a measured approach to easing and underwrites the soft economic landing outlook. In recent weeks, the narrative of a hard economic landing has weighed on sentiment. This has seen speculative net long positions in Brent futures turn bearish for the first time. The latest move by the Fed could see some of this extreme positioning unwind in coming days. Traders are also keeping an eye on events in the Middle East. Tensions remain high after Iran-backed Hezbollah accused Israel of orchestrating an attack that killed several people.
European gas futures eased as flows from Norway improved after extensive works. Pipeline exports from Norwegian fields are expected to jump nearly 13% on Wednesday to levels last seen at the start of the month. Some of the country’s extensive seasonal works are nearing their end, data from the nation’s grid operator showed. This helped offset worries about weather forecasts pointing to a potential cold spell across northwest Europe late next week and into early October. German utility Uniper said Europe is in a strong position to maintain steady energy supplies this winter even as a key Russian gas transit route is set to close. CEO Michael Lewis said the overall position is reasonably strong going into winter. North Asian LNG prices were dragged lower by the weakness in European markets.
Copper led the base metal sector higher in the lead up to the FOMC meeting. However, with the London Metal Exchange closing before the announcement, markets were left to ponder what lowering borrowing costs will mean for the sector. The increase in the medium-term outlook for rates should come as a positive, with metals highly sensitive to factory activity and overall economic growth. US demand is likely to benefit from an improving property sector. US housing starts jumped 9.6% to a 1.36m annualised rate last month, the fastest since April.
Chart of the Day
US crude oil inventories continue to fall, highlight tight supplies despite concerns over the economic backdrop
Assistant Vice President, Wealth Management Associate
20hThanks for posting