Gold is gearing up to secure its best month since the banking crisis in March. Here are three reasons why. Market participants are turning to the precious metal. First, the Federal Reserve is near completion of its fastest interest rate hiking cycle in American history. Over the last 18 months, the Federal Reserve increased its main rate at 11 consecutive meetings from March last year until its meeting in July.
Many criticized the historically fast pace, given the current levels of government debt. However, once the Federal Reserve hits pause, historically they have cut rates within 7 to 9 months, according to the CME Group Fed Watch Tool. There is a better than 50% probability the Fed will cut rates by at least 25 basis points by June 2024. This could have bullish implications for the precious metals.
Second, geopolitical tensions and uncertainty remain on everyone’s radar, with two very complex wars breaking out over the past two years. Gold’s historic safe Haven properties have never been more relevant. Third, since the Bretton Woods Agreement of 1944, the US dollar has been the world’s reserve currency. Factors such as geopolitical tensions abroad, political instability at home, or loss of confidence in the U.S. could cause other countries to seek an alternative.
Gold could become widely accepted in international trade and investment. The global financial system is highly connected, and any major disruption could have widespread implications, leaving investors searching for alternative assets such as gold.
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