How Fed Policy can Propel Metals Higher in 2024.

Gold futures entered 2024 with a bang, trading to a historic record high in December. Helping to underpin its strength was a heightened geopolitical landscape and an anticipated shift in Federal Reserve policy. Focusing on the latter, CME Group Fed Fund futures priced in as many as seven potential interest rate cuts in 2024, helping Gold to trade higher in eight of the last twelve sessions of 2023. 

With such lofty expectations, many traders and investors were left disappointed with Gold’s activity in January, typically a seasonally bullish month for the precious metal. Weighing on the enthusiasm was the Federal Reserve, which tried to pour cold water over rate cut expectations. Fed Chair Powell further attempted to do so at the January 31st policy meeting, saying he did not see a March cut as the base case.  

In the meeting’s aftermath, expectations for a rate cut in March, according to the CME Group’s FedWatch Tool, went as low as 30%. However, a 25-basis point cut by the May 1st meeting are holding above 90%. Whether that cut comes in March or May, it is good news for Gold as it has averaged a rise of 6% within 30 days of the first Federal Reserve rate cut. Therefore, it is just patience and risk management that matter most until then.