The Fed’s Rate Cut: A Surprise to Some, But Not to the Markets
The Fed funds futures forward curve has been indicating a September rate cut by the US Fed, and this trend continues to hold true. Meanwhile, gold has been extending its long-term uptrend, with many attributing this to the expected rate cuts and a weaker US dollar. However, it’s essential to look beyond the statistics and consider what the markets are saying.
A Closer Look at the Fed Fund Futures Forward Curve
As of mid-August, the Fed fund futures forward curve still shows the September futures contract indicating a 25-basis point rate cut. This is not a surprise to those who have been following the market trends. In fact, the curve also shows another expected rate cut at the end of the November meeting, followed by a hold in December.
The Impact on Gold
Gold has historically been a safe-haven market, and its long-term uptrend is a testament to this. The monthly chart for the cash index shows the market’s uptrend has been extended, with a high just short of $2,500. While the index is technically overbought, it’s essential to consider the fundamental factors driving this trend.
The US Dollar Index: A Sideways Trend
The US dollar index has been consolidating between its recent high and low, with a sideways trend dominating 2024. Despite the expectation of interest rate cuts, the index has not confirmed a downtrend. This is an interesting development, and it will be crucial to monitor the index’s movement in the coming months.
The Inverse Relationship Between Gold and the US Dollar Index
The idea of an inverse relationship between gold and the US dollar index is often discussed, but the data tells a different story. A 10-year study shows a modest 43% correlation between the two markets, with a direct rather than inverse relationship. This challenges the conventional wisdom and highlights the importance of looking beyond statistics.
Conclusion
The expected rate cut in September is not a surprise to those who have been following the market trends. Gold’s long-term uptrend is a testament to its safe-haven status, and the US dollar index’s sideways trend is an interesting development. As we move forward, it will be crucial to monitor the markets and consider the fundamental factors driving these trends.
The US dollar index has been consolidating between its recent high and low, with a sideways trend dominating 2024.
Gold has historically been a safe-haven market, and its long-term uptrend is a testament to this.
The Fed funds futures forward curve has been indicating a September rate cut by the US Fed, and this trend continues to hold true.
