The gold price lost some shine today following the decision yesterday by the U.S. Federal Reserve to cut interest rates. Banking analysis, which showed that Americans have not found the precious metal as much of a safe haven as previously thought also hit its allure.
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Uncertainty Over Rates
The Fed cut rates by 25 basis points in a split vote, putting it in a range of 3.50% to 3.75% – its lowest level in three years.
Despite lower interest rates being good for the precious metal, the spot gold price was, however, flat at $4,214. That is likely down to caution over the future policy direction of the Federal Reserve. It gave guidance that borrowing costs may not fall again soon as policymakers wait for clearer evidence of a cooling labour market and inflation that, in their words, “remains somewhat elevated.”
“The Fed’s accompanying statement, which removed the forward guidance on additional cuts, alongside two hawkish dissents, gave this cut a hawkish flavour,” said Max Stainton, senior global macro strategist at Fidelity International. “However, the reintroduction of quantitative easing (QE) targeting $40bn bill purchases a month, alongside a set of dots which retained a cut next year and the year after, suggests there is still a large bulk of the FOMC who see interest rates as being able to fall further before hitting a neutral resting point.”
Lukewarm American Interest
The gold price has been on a record-breaking run this year – see below – as economic and geopolitical uncertainty drove investors to find a safe haven for their cash.
Gold-linked ETFs have also done well. The SPDR Gold Shares ETF (GLD) has climbed 60% this year, with the VanEck GoldMiners ETF (GDX) up 141%.
However, analysis from banking giant Goldman Sachs (GS), has found that the allure of gold has not been universal.
It said that U.S. investors remain only marginal holders of gold, with ETFs accounting for just 0.17% of private U.S. financial portfolios in the second quarter. That’s a tiny share of the $112 trillion Americans hold in stocks and bonds.
It also said that less than half of large U.S. institutions managing more than $100 million have any gold ETF exposure. Of those that do, typical allocations are small ranging from 0.1% to 0.5%. For major long- term investors, about 0.2% of portfolios are held in gold.
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