The prospect of a Federal Reserve rate cut saw U.S. equities and gold rise ahead of the Federal Reserve’s interest rate policy decision on Wednesday. The precious metal is eyeing a rate cut and even more to come through 2019, which should give gold other metals a boost.
Will Rhind, CEO of GraniteShares, is looking to more gold strength as long as the central bank remains dovish in its stance.
“The expectations, in terms of the market right now, are so overwhelmingly for a rate cut that we have, right now from a probabilities perspective, more chance of rates going to zero than we do one hike in the market,” Rhind told Kitco News. “So, at the moment, you’ve got real interest rates coming down, or expectations of real interest rates coming down and that’s always a positive to gold.”
A data-fueled Fed will not doubt take into account the latest economic data, such as the latest jobs report from the Commerce Department as an indicator on the health of the economy. Earlier this month, the Labor Department revealed that only 75,000 jobs were created in May, which fell below expectations and could be a sign that the U.S. economy could be on the verge of a slowdown.
Nonetheless, the unemployment rate remained at a generational low of 3.6 percent.
“The overwhelming factor here is the dollar and the interest rates and particularly real interest rates. That’s one of the best correlations or relationships that we have, in terms of real interest rates and gold, and so if you see real interest rates coming down, the opportunity cost obviously of holding a zero-interest rate asset like gold diminishes, and that’s positive for gold,” he said.
U.S. markets came to life on Tuesday, which also resuscitated the Asian markets on Wednesday after optimism from improved prospects of a U.S.-China trade deal came when U.S. President Donald Trump said in a tweet he “had a very good telephone conversation” with Chinese President Xi Jinping. The positive news could cast emerging markets in a positive light as the hopes for a trade deal don’t appear dashed just yet.
The G-20 Summit in Japan will be on the docket for June 28 where the two leaders of the world’s largest economies will discuss the current trade impasse.
Gold ETFs to Play
investors can look at exchange-traded funds (ETFs) like the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD). Adding precious metals to a portfolio certainly speaks to the diversification benefits of gold, among other things.
Additionally, short-term traders can also play the gold market through miners via the VanEck Vectors Gold Miners (NYSEArca: GDX), Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT).
For more relative market trends, visit our Relative Value Channel.
