Fed cuts rates, gold retreats in “buy rumor, sell fact” trade

[Ben Graham]

Today’s Federal Reserve Rate Cut Is Just the Start, Gold Still Climbing

The Federal Reserve cut interest rates by a quarter point today, marking the start of an important new monetary easing cycle. In an 11-1 vote, central bankers lowered the Fed’s benchmark rate to 4.00-4.25%. The lone dissent came from newly appointed Governor Stephan Miran, who wanted a half-point rate cut. A majority of Fed officials indicated they expect at least two more interest rate cuts in 2025, suggesting easing at the October and December meetings.

After hitting a new record high earlier this week, gold pulled back after the Fed news. Today’s Fed rate cut was widely expected, and short-term traders bid up the precious metal recently and sold it to take profits in a classic “buy the rumor, sell the fact” trade. The long-term trend for gold remains firmly higher.

Digging Deeper Into the Fed’s Move

What’s notable about today’s move is that the central bank is cutting interest rates, while inflation is still climbing higher. You may recall that the Fed has a “dual mandate” with policy goals of both full employment and inflation price stability.

However, today, the Fed said that “job gains have slowed” and inflation has “moved up and remains somewhat elevated.” Indeed, the most recent Consumer Price Index revealed that inflation rose 0.3% in August to a 2.9% annual rate, well above the Fed’s 2% inflation target.

While the Fed typically takes a balanced view on employment versus inflation, today’s action shows it is favoring the labor market by trying to help boost jobs with lower interest rates.

What Does This Mean for Gold?

For the gold market, this is a bullish signal. Every time since 2001 when the Fed has cut rates with the CPI above 2%, gold has rallied on average 13% over the next year, according to the Bank of America research.

Gold, already up 40% since the start of the year, is in the midst of a major secular bull market in precious metals. The start of a Fed rate cut cycle has been historically very positive for gold, which sees major targets at $4,000 and even $5,000 this year and next, according to many major banks.

For investors in gold, this is an important moment, one that could define precious metal markets for the next several years. Historically, periods of easing monetary policy have ushered in some of the strongest gold rallies ever recorded.

Looking Ahead: More Cuts and More Upside for Gold 

Current projections suggest that the Federal Reserve could cut rates multiple times over the next 12-18 months. If the economy slows further, as many economists anticipate, the Fed may continue easing throughout 2026. That trajectory creates an environment tailor-made for gold strength. In previous cycles of interest rate cuts, gold consistently outperformed stocks, bonds, and even real estate. Are you positioned properly for this new interest rate environment?

Why Now is the Time for You to Consider an Increased Allocation to Gold

With the current gold rally underway and the expectation of prolonged monetary easing, now is the perfect time for you to reassess your portfolio allocation.

Do you have enough economic insurance? With geopolitics boiling over, inflation climbing as the economy slows, it’s the perfect storm for a setback in the stock market.

Action to take: Consider trimming your stock allocation (which may have become stretched) and pile those proceeds into the safety of gold. Gold preserves and protects your wealth, and provides a peace of mind insurance policy for whatever could lie ahead.

Waiting on the sidelines could mean missing today’s rare window of opportunity. Each rate cut strengthens the long-term bullish case for gold. By increasing your allocation now, you can capitalize on ongoing momentum and position your portfolio for further gold gains in 2025 and 2026.

Blanchard is committed to guiding you through this dynamic market environment with personalized strategies that consider your long-term financial goals, risk tolerance level, and today’s market conditions.

Thank you for your trust and partnership. We stand ready to assist.

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