Skip to content Skip to footer

Gold Continues to Show Strength After Fed Rate Cut

The gold market initially rallied during the trading session on Thursday, as traders around the world continue to react to the Federal Reserve interest rate cut of 50 basis points. The question now is whether or not that is actually a good thing, because quite frankly, you have to keep in mind that the Federal Reserve has a long history of being wrong all the time, and they generally find themselves in a situation where when they’re cutting 50 basis points, something horrific is about to happen.

The last two examples were the Great Financial Crisis and the tech bubble bursting, although in all fairness, it doesn’t necessarily have to be that way this time. However, it is worth noting that the Wednesday session initially saw gold skyrocketing only to give back the gains. The question now is, are the other reasons for gold going higher going to hold?

Experts trade the markets with IC Markets
Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spread
The first one, of course, is the fact that several Asian central banks and Russia are buying gold, and that certainly doesn’t hurt. Furthermore, we have a lot of geopolitical concerns, and at this point, World War III is a very serious conversation. So, with all of that coming together, it does make a certain amount of sense that people are buying gold.

The $2,530 level is an area where we’ve seen a lot of resistance in the past, so I would anticipate a certain amount of market memory in that area if we pulled back to offer support. I do like the idea of buying dips, but gold certainly seems to be very choppy in this region. We’ve had the British hold still in the Bank of England. And now we have the Bank of Japan coming up Friday morning, could move the market a little bit. But at the end of the day, I think a lot of people are trying to sort out what does a 50 basis point rate cut actually look like.

Gold, although a safety asset, sometimes gets sold off in those situations because people have to raise liquidity and by doing so, or by needing it, they have to sell winners. So sometimes gold gets sold off quite rapidly all of a sudden when you wouldn’t think it would happen. Be cautious, I get the feeling volatility is only going to get worse than most markets.

Source: Fxempire