Despite gold’s mammoth price gains in recent weeks, the general consensus amongst experts is that we haven’t seen anything yet. Analysts expect gold prices to skyrocket when the Federal Reserve begin to cut rates later this summer, with the loosening of monetary policy set to propel the bulls to new record highs.
This week, we have been treated to a sneak peak as to what that intense response may look like, thanks to the Swiss National Bank. It’s become the first major economy to begin reversing rate increases, with a surprise 25-point cut announced on Thursday.
With that cut, we gained some valuable insight as to what we can expect to happen next. In the aftermath of the announcement, the gold bulls surged, quickly racing to a 2.06% increase against the Swiss franc. This immediate and notable push higher is hugely tantalising for investors, as it gives us just a hint of what we can expect when the Federal Reserve follows suit.
Comments made by the Swiss national bank also gave hope that the Federal Reserve may also take action sooner rather than later. Its analysts say that all signs point to inflation being under control. “For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability,” they explained. “According to the new forecast, inflation is also likely to remain in this range over the next few years.”
The managing director of foreign exchange firm, Bannockburn Global had an interesting take on the move, suggesting that the Swiss government was trying to get out in front of imminent Federal Reserve policy changes. March Chandler says, “Rate cuts from the Fed are coming, so the SNB has to beat them to it too because they need to give their currency some cushion against weakness in the U.S. dollar.”
Blue Line Futures strategist Phillip Streible says that gold’s gains could be even higher against the dollar. He notes, “Research we have looked at says since the 1990s, gold has rallied 6% in the first 30 days after the Federal Reserve’s first rate cut in an easing cycle.” A rally of that magnitude would see the gold bulls easily setting a new all-time price record.
Don’t wait for the Feds to announce the inevitable. Buy gold now before rate cuts are initiated to send prices soaring.
