Prospect of Future Rate Cuts Sends Gold Past 5-Year High

The prospect of future rate cuts by the Federal Reserve saw gold surpass its 5-year high on Wednesday after the central bank said it “will act as appropriate to sustain” economic expansion. To an optimistic capital market, that meant the door was open for interest rates to fall in 2019 after staying static thus far through the middle of the year.

March 17, 2014 saw gold at $1,383.81, but following the interest rate announcement, gold went past the $1,380 mark. On the opposite end of the spectrum, the dollar index fell to a one-week low.

Leveraged exchange-traded fund (ETF) traders rejoiced, which saw funds like the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT) rise.

“With the move higher in gold we noticed great performance from NUGT (Direxion Daily Gold Miners Bull 3X), as the fund closed 4% higher and is up nearly 20% since the 11th of June as investors have moved to safety,” WallachBeth Capital wrote in an email.

A data-fueled Fed will not doubt took 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.

Other Gold ETFs to Consider

Now that a U.S.-China trade deal is left in limbo, it leaves investors looking for the next trigger event to save the markets. With the central bank keeping rates steady thus far in 2019, the next move investors are hoping for is a rate cut, especially if the Fed is sensing a slowdown given the latest economic data.

That should give gold ETFs a boost through the rest of the year until a cut actually happens.

“We’ve had 75 years of expanding globalization and trade… and now all of a sudden it’s stopped,” said hedge fund manager and philanthropist Paul Tudor Jones. “That would make one think that it’s possible we go into a recession; it would make one think that rates in the United States go back down to the zero bound level; gold in that situation is going to scream. [Gold] will be the antidote for people with equity portfolios.”

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) and the Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG).

For more relative market trends, visit our Relative Value Channel.