The US Federal Reserve has cut interest rates by 50 basis points.
In its decision, the Fed said recent indicators suggested that US economic activity was expanding at a solid pace, job gains had slowed, the unemployment rate had moved up but remained low, and inflation was tracking towards the goal of 2% “but remains somewhat elevated”.
“In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent,” the Fed said on Wednesday afternoon.
“In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”
The spot gold price shot up to a new record of US$2599.40 an ounce following the announcement, but then pulled back to below US$2570/oz.
On Tuesday, during the Gold Forum Americas in Colorado Springs, Incrementum AG managing director, partner and fund manager Ronnie Stoeferle said gold could pull back following an interest rate cut, but it would likely only be temporary.
“Quite often, the very first rate cut created some volatility in the gold price over the next couple of days,” he said.
“So my take would be that we could really see gold taking a breather over the next couple of weeks.”
While gold outperformed in the two years following the first US rate cut, gold stocks performed even better.
“From my point of view, we're now entering the sweet spot for gold and gold miners,” Stoeferle said
.