What A Week!

It’s been an eventful week in both the political and financial markets. Vice President Kamala Harris faced off against former President Donald Trump in a high-profile debate, where she performed notably well, regardless of differing political perspectives.

Shortly after, a second attempt on Trump’s life was reported, further intensifying the political climate in the U.S. The outcome of the upcoming election is expected to significantly influence gold prices. If the Democrats secure a victory, demand for gold may increase as wealthy Americans look for a safe haven amid concerns over a potentially more socialist economic environment. Conversely, if Trump wins another term, investors might feel more confident due to his administration's domestic economic policies.

The Federal Reserve is in focus this week, with Wednesday being a crucial day for potential interest rate cuts. The central bank is still undecided about whether to lower rates by 0.25% or 0.50%. The Bank of England is also likely to hold steady on its policies but might consider tightening measures, although recent weak GDP figures have increased the chances of a cut.

Recent data showed the Consumer Price Index (CPI) increased by 2.5% year-over-year in August, which was lower than expected and the smallest increase since February 2021. The Core CPI, which leaves out food and energy prices, remained steady at 3.2%, as predicted.

There's still uncertainty around how much the Fed will cut rates. A smaller cut of 0.25% could happen because there isn't an economic emergency right now. This would give the Fed room to make a bigger cut in November if needed. On the other hand, a larger 0.50% cut is possible because there won't be another Fed meeting in October, and the current rates are already quite restrictive. Plus, it’s unlikely that inflation will rise again with current commodity prices and the state of the economy.

This uncertainty has caused market fluctuations. Investors are currently betting on the chance of a 0.50% rate cut, which has helped gold prices soar to a new all-time high of $2,590 per ounce, while the U.S. dollar is experiencing some weakness. Until the Federal Reserve makes a clear decision, this market choppiness is likely to continue. Right now, polls show a 50% chance of a 0.50% rate cut.

Looking at the bigger picture, the Fed’s path is expected to be similar to its rate-cutting cycle in 2019. Back then, gold, silver, platinum, and palladium saw increases of 6%, 10%, 10%, and 16%, respectively, between July and November of that year.

MKS Pamp, Peapack

Follow Mark on Twitter @YaxleyYax