The gold price in world spot market managed to record gains on Wednesday (31/7) (Credit : Commoditytrademantra)

World gold price scenario after The Fed announces interest rates

Siti Fatimah Adri
Politics & Economic
International
Jul 31, 2019
2311
The gold price in world spot market managed to record gains on Wednesday (31/7). This strengthening has become the third time in a row this week and can even lead to a significant surge until the close of trading at 5:00 WIB tomorrow.

Data from CME Group's FedWatch device at 11:50 WIB showed the market saw a probability of 78.1% The Fed would cut interest rates 25 basis points (bps) to 2.00% -2.225%, and probabilities of 21.9 % interest rates are cut 50 bps to 1.75% -2.00%.
In total, the probability of the benchmark interest rate being cut (25 bps or 50 bps) has reached 100%, which means that market participants see interest rates will definitely be cut, just the realization of how many basis points

With almost certain interest rates going to be cut, there are several scenarios that might occur and their effects will vary to the price of gold.

The Fed cut interest rates by 25 bps, and opened opportunities for interest rate cuts three times this year. If this scenario occurs, it will be in line with the expectations of market participants, gold prices have the potential to strengthen even though the strengthening will not be insane.

Or The Fed will cuts interest rates by 25 bps, but will not be aggressive in cutting interest rates this year. In the sense that the Fed might cut interest rates once more, the total would be twice this year. In effect, the price of gold has the potential to weaken.

With the economic conditions of the Eurozone and Japan not better than the US, ECB and BOJ took a less dovish stance. The condition of US economy is quite good, economic growth in quarter II-2019 despite slowing to 2.1% from 3.1% previously, but still higher than the Reuters survey of 1.8%

Source: https://www.cnbcindonesia.com/market/20190731135633-17-88867/the-fed-umumkan-suku-bunga-ini-skenario-untuk-harga-emas