Gold Prices Surge On Hopes Fed Hiking Cycle Is Finally Over – What’s Next?

Inflation Report Spurs Traders to Flee Stocks and Bonds for Commodities

A normal day for markets became something extraordinary after a hotly anticipated report on U.S Consumer Price Inflation gave traders a greenlight to declare that the Federal Reserve’s fight against inflation was finally over.

U.S Consumer Price Inflation fell more than expected to 3.2% in October – the first decline in four months. The reading was also marginally below expectations of 3.3%.

The Fed held its benchmark interest rate steady at a 22-year high earlier this month. Traders had put the likelihood of another rate hike at 30% just before the CPI release, but by the close that had been priced out altogether. Instead, they moved to ratchet up the likelihood of a cut, with the prospect of a cut by May soaring from 23% on Monday to 86% by Tuesday’s close.

Following the report, JP Morgan put out a note to their clients, advising them to shift away from Stocks and Bonds and diversify into Commodities for 2024. JP Morgan listed several reasons for its outlook, but overall highlighted that the recent move higher in Equities and Bonds was technical in nature, boosted by short covering and momentum strategies.

The Wall Street bank believes Equities’ risk-reward remains “unattractive.” While on the flipside, the global macro and geopolitical risks currently unfolding will continue to considerably favour Commodities.

Analysts at Citigroup and Goldman Sachs relayed an identical message to their clients on Tuesday, advising them to “avoid Stocks and Bonds and put money in Commodities”.

U.S. Faces Potential Credit Rating Downgrade Amidst Debt Crisis and Pending Government Shutdown

Looking ahead, the next major macro event that traders will be watching closely for clues on the markets next big move will be the pending U.S government shutdown – unless a federal budget for the next fiscal year is approved by Congress and signed by the President before November 17.

America’s alarming debt crisis is once again taking front and centre stage again after the credit rating agency Moody’s lowered its outlook on the U.S government’s credit ratings to “negative” – citing the cost of rising interest rates and political polarization in Washington has significantly increased downside risks to the country’s economic and fiscal strength.

While Moody’s has not officially downgraded the United States’ credit rating just yet – the move presents another black mark for the economy.

Back in 2011, Standard and Poor’s downgraded the United States after months of political brinkmanship over the nation’s debt ceiling. More recently in August this year – Fitch Ratings also downgrading the U.S credit rating from AAA to AA+ after the United States narrowly avoided defaulting on its debt for the first time in history.

And now the Moody’s negative outlook has made it more likely that the world’s largest economy is on the way to losing its last AAA rating.

Gold Price Forecast

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