Trading the rate cut: Streible offers short-, long-term outlook

The Fed is about to cut interest rates, and if history is an indicator, that could be very good for gold.

  Gold & Silver Steady on Strong Dollar (photo credit: SHUTTERSTOCK)
Gold & Silver Steady on Strong Dollar
(photo credit: SHUTTERSTOCK)

MUFG’s Ehsan Khoman believes one of the most significant metal price headwinds is about to be eliminated.

“High rates have been a critical headwind to base metals, driving a significant negative physical demand distortion from destocking and weighing on capital-intensive end-demand segments,” he said.

World Gold Council’s John Reade told Reuters on Monday, “Speculators on the Comex gold futures markets are positioned for this. It could be a case of buying the rumor and selling the fact.”

 This chart shows how specific commodities have performed following the first rate cut of an easing cycle. (Source: Reuters) (credit: PR)
This chart shows how specific commodities have performed following the first rate cut of an easing cycle. (Source: Reuters) (credit: PR)

Gold negatively correlates to yields and usually outperforms other commodities during rate cuts. Traders are currently pricing in a slightly higher chance of a 50-basis-point cut than a 25-point cut at Wednesday’s FOMC meeting.

Short-term outlook: Be weary

Blue Line Futures Chief Market Strategist Phil Streible said last week’s explosive rally could cause concern with traders looking to make a precious metals play on the Wednesday Fed meeting.

“We are a little bit concerned,” he told the Jerusalem Post on Monday. “The last three or four sessions had a pretty explosive rally and a move up to all-time highs.”

He said the Chicago, Illinois-based firm is skeptical for the need for the Federal Reserve to cut aggressively with an initial 50-basis-point reduction.

“Inflation is trending lower, and the labor market saw a downtick on the last unemployment numbers, but it hasn’t been anything really drastic. We are expecting more of a soft landing and we think (Fed Chairman) Jerome Powell will be more data dependant going forward and take a small victory lap on inflation.”

Long-term outlook

Streible remains bullish on gold over the mid-to-long-term timeline.

“We believe any pullback that we could see in the next week as traders digest the fed will be supported by the long-term thesis that it’s only the beginning of the Fed’s cutting cycle and they will cut into 2025,” he said.

He said Blue Line targets a gold price of $2,750 by the end of 2024 supported by multiple interest rate cuts.

This article is for informational purposes only. The opinions and analysis herein are those of the author and are not financial advice. The Jerusalem Post (JPost.com) does not endorse or recommend any investments based on this information. Investors should consider their financial situation, investment goals, and risk tolerance before making any decisions. Consulting a qualified financial advisor is recommended. JPost.com is not liable for any investment losses from using this information. The information provided is for educational purposes only and should not be considered as trading or investment advice.