Guessing games

The FOMC - Federal Open Market Committee - voted to keep US interest rates unchanged . But two governors voted for a cut in interest rates this week, against the majority. That matters, and not just because such dissenting voices are unusual. It matters because of what it tells us about the likely direction of interest rates when the FOMC next meets, on 16-17 September. Although the Fed's chairman, Jerome Powell, said "we have made no decisions about September", two-thirds of interest-rate traders as measured by the closely-followed CME FedWatch tool are now betting that September's meeting will see an interest rate cut.

Lower interest rates usually benefit gold. They typically spell a weaker US Dollar and when that happens the gold price tends to go up. With gold near $3,300/ounce, up more than 35% in the past 12 months, doubts that it can go higher are in the market. On the other hand some analysts see the price reaching, and surpassing, $4,000/ounce, this year. But the most important fact is that the gold price has found a new base, $3,000.

President Trump has declared himself in favor of lower interest rates. He wants to re-energize America's industry, make US exports more competitive; a weaker Dollar will help. So far in 2025 the US Dollar has fallen by almost 11% against a basket of other currencies, the worst performance over the first six months of any year since 1973. The gold price has rallied significantly over the same period.

Rough waters ahead?

Unusually, as the gold price has hit new highs, so have equities. The S&P 500 this week closed at another record high, its 15th of the year. This was a remarkable turnaround from the sharp 20% decline from its 19 February peak to 9 April. The UK's FTSE 100 has also breached multiple records so far this year and has closed above 9,000 points for the first time. Market valuations are high and perhaps signaling that investors should be cautious.

These records are nothing new. In 2024 the S&P 500 index set 57 record highs, nearly one every four trading days. But these valuations are anticipatory. They are optimistically forward-looking - how profitable will the companies in the index actually be in the years ahead? The bursting of the dotcom bubble saw global stocks lose around a quarter, US government bonds rose some 13% and gold fell by about 8% - only to rise by almost 168% shortly thereafter.

Techno-optimism has swept aside rational doubts; question these heady valuations and risk being called a party-pooper.

Small cheer

Biggest reason of all is the stonking growth of the US in the 2nd quarter this year, an annual pace of 3%, compared to a decline of 0.5% in January to March. But Powell correctly pointed out at his post-FOMC press conference that "economic activity has moderated. GDP rose at a 1.2 percent pace in the first half of the year, down from 2.5 percent last year. Although the increase in the second quarter was stronger at 3 percent, focusing on the first half of the year helps smooth through the volatility in the quarterly figures related to the unusual swings in net exports." Another optimistic note is that the unemployment rate in the US is low, at around 4%. On the other hand new home sales in June were almost 7% lower year-on-year as consumers continued to feel the pain of unusually high mortgage rates.

Those 'unusual swings' was of course a reference to America's tariff policies. The 2nd quarter's growth spurt was largely driven by a 30% decline in US imports after US tariffs took effect. The 1.2% growth in the first half of 2025 compares poorly with 2024's overall gross domestic product (GDP) growth of 2.8%.

Get more gold!

No one knows precisely what is the underlying direction of the US economy. For every piece of good news there is a countervailing message of misery. Much depends on the the tariff effects, which is unclear, not least because the tariffs change so frequently. Copper prices for example have dropped by 20% after refined copper was exempted from new 50% tariffs.

It feels like we have lived with this economic uncertainty ever since the Covid-19 pandemic. While equity valuations reach ever new peaks and inflation constantly threatens to break out again it's no surprise that the FOMC displays its hesitancy. It's as if we are all waiting for some catalyst; that's true of gold too, which has spent the recent weeks trading sideways.

But amid all this uncertainty, there's one laser-like truth - gold remains impervious to the mess.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.