Key Macro Charts: Looking at the explosive potential of gold from a different perspective (2024/9/19)
Analysts point out that a 50 basis point rate cut by the Federal Reserve may not guarantee an economic soft landing, as historically rate cuts have often been accompanied by economic downturns. Compared to 1994-95, there are significant differences in the current economic situation. Gold investors are dissatisfied with the slow rise in gold prices, but analysts believe that gold is poised to enter a bull market after breaking through against major currencies, with recent bullish signals already evident
Rate Cuts vs Recession
Analyst: The Federal Reserve cut rates by 50 basis points and plans to cut another 50 basis points before the end of the year. Can this ensure a soft landing for the economy? I have some doubts.
In the period from January 2001 to March 2001, the Federal Reserve cut rates by a total of 100 basis points, but a recession followed just one month later. Similarly, from September 2007 to December 2007, the Federal Reserve also cut rates by a total of 100 basis points, and the financial crisis erupted in January 2008.
Investors hope to replicate the prosperity of 1994-95 when the Fed's loose policy paved the way for economic growth. However, there are at least three differences between then and now:
First, the rate hike cycle in 1994-95 was relatively mild. The Fed raised rates by 300 basis points from February 1994 to February 1995, while this time the hike reached 525 basis points;
Second, the unemployment rate was declining after 1993, but now the unemployment rate is rising ;
Third, in the late 1990s, there was a large-scale boom in non-inflationary capital spending, accompanied by rapid productivity growth, but current data do not show a similar trend.
Rate Cuts vs Crude Oil
Historical data shows that within a year after the first rate cut by the Federal Reserve, crude oil prices fluctuated significantly, ranging from a 31% decline after the 2019 rate cut to a 58% increase after the 1998 rate cut.
Viewing Gold from a Different Angle
Analyst: Precious metal investors complain that gold's rise this summer has been slow. In fact, since April, gold's rise has been more due to the weakening of the US dollar than its own strength. Priced in other major currencies, gold has made little progress since April. However, the positive side is that once gold breaks out among major currencies, it is expected to enter a stronger bull market.
And this has already happened. The chart below shows gold priced in euros, pounds, and Swiss francs, outlining the trend structure of gold very clearly. It can be seen that the trading range of gold in the summer is very clear, with a range of 400 points, and the price broke through this range last weekend, which is a very bullish signal.
The charts shared later will further explain my expectations for the upside potential of gold.
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