Gold and U.S. Stocks Surge Together Ahead of Anticipated Federal Reserve Rate Cut

Sam Bourgi @hsbourgi
October 25, 2019 16:00 UTC
  • Gold price hits monthly highs above $1,520/oz.
  • S&P 500 Index approaches record territory for the first time since late-July.
  • Fed Fund futures prices imply 93.5% likelihood of a rate cut next week.

Gold and U.S. stocks moved in the same direction on Friday, as a weaker economy reinforced expectations that the Federal Reserve will resume its rate-cutting initiative next week.

Gold Touches Monthly High

Futures on December gold delivery peaked at $1,520.90 a troy ounce, representing a daily gain of almost 1% on the Comex division of the New York Mercantile Exchange. The most actively-traded futures contract is currently trading above $1,515/oz, where it was on track for its highest settlement since Sept. 24.

December gold futures caught a strong tailwind on Friday; at $1,515/oz, bullion is 3.3% shy of its six-year high. | Chart: barchart.com

Silver futures posted even bigger gains, rising 46 cents, or 2.6%, to $18.27/oz. The grey metal is also trading at monthly highs.

Gold’s premium over silver plunged 1.7% on Friday to 82.88. That’s how many ounces of silver are needed to purchase one ounce of gold.

Lower Interest Rate Expectations Baked into Markets

Gold rose in lockstep with equities Friday as traders raised bets that the Federal Reserve will slash interest rates next week.

Lower interest rates provide equities with additional liquidity, prolonging a bull market that has stretched on for more than a decade. For gold, looser monetary policy ensures that real interest rates remain firmly capped below inflation.

Over the past 12 months, yields on government bonds have declined both nominally and in a real sense, as investors loaded up on Treasurys to safeguard against ailing economic health. Gold is likely to remain extremely bullish so long as inflation is higher than interest rates.

Futures traders are doubling down on an October rate cut. | Chart: CME Group

Despite some internal dissent, the Federal Reserve slashed interest rates in September for the second time in as many meetings. Markets anticipate a further reduction of up to 50 basis points before 2019 is over. Fed Fund futures prices already imply a 93.5% likelihood of a rate cut next Wednesday when policymakers wrap up their two-day meetings.

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This article was edited by Josiah Wilmoth.

Last modified: October 25, 2019 16:21 UTC

Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com