Fed rate cut leads to new record highs for stocks and gold

Asset traders were in full risk-on mode following yesterday’s surprise 50 basis point rate cut from the Fed as stocks, cryptos, gold, and silver all trended higher on Thursday. Gold prices are near all-time highs amid expectations of a US Fed rate cut, which could weaken the dollar and boost gold demand.

“On Wednesday, the Federal Reserve cut its benchmark rate to a range of 4.75%–5%, down from 5.25%–5.5%,” said analysts at Secure Digital Markets. “This marked the Fed’s first rate reduction in four years. The decision, while expected, drew some criticism for its size, with many questioning whether it was enough.”

“The Fed’s projections, outlined in the ‘dot plot,’ suggest another 50bps worth of cuts through 2024,” they added. “They also anticipate a slight uptick in the unemployment rate by year’s end, now forecasted at 4.4%, compared to June’s estimate of 4%, with elevated levels extending into 2025 before improving. Futures markets are pricing in a 75bps cut by year-end, with a 65% probability of a 25bps cut in November and a 50% likelihood of a 50bps reduction in December.”

Spot gold charted a path higher

After reaching a new record high of $2,600 on Wednesday and then retreating to $2,550, spot gold showed an upward trend on Thursday, trading at $2,584.70 per ounce. This reflects a session increase of 1.04%.

Gold prices are nearing all-time highs as anticipation grows for a potential US Federal Reserve rate cut on September 18. The expectation of a weaker dollar, resulting from these anticipated cuts, has rekindled interest in gold, which is seen as a safe-haven asset during times of currency depreciation and economic instability.

The international gold prices have surged over 24%. This rise is fueled by several factors, including expectations of rate cuts that enhance gold's safe-haven appeal, central bank purchases, uncertainty surrounding the US elections, escalating geopolitical tensions, and increased investment through exchange-traded funds (ETFs).

Stocks trading near a record high

The Federal Reserve on Wednesday cut interest rates with U.S. stocks trading near a record high, leaving investors searching for historical clues to the path ahead for markets.

The S&P 500 SPX briefly traded above its record close from July 16 after the Fed delivered a rate cut of 50 basis points before erasing its gain to end 0.3% lower. Stock-index futures pointed to sharp gains that could see the S&P 500 and Dow Jones Industrial Average DJIA take another run at record territory.

The 30-stock index advanced 522.09 points, or 1.26%, ending at 42,025.19, marking its first close above the 42,000 threshold. The S&P 500 rose 1.7% to close at 5,713.64, topping 5,700 for the first time. The Nasdaq Composite surged 2.51% to end at 18,013.98.

Tech stocks rallied as the rate cut spurred investors to return to a risk-on mood. Nvidia and AMD shares popped about 4% and nearly 6%, respectively. Micron Technology added 2.2%. Other Big Tech stocks such as Meta Platforms and Alphabet advanced 3.9% and 1.5%, respectively.

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