Will The Bank of England’s Rate Decision Send Gold Prices Higher Or Lower?

Phil Carr
Published: Jun 18, 2024, 17:09 GMT+00:00

It's official: Interest rate cuts have overtaken stubborn inflation this month as one of the biggest and most lucrative macro trading opportunities of this year, if not this decade.

In this article:

ECB’s Rate Cut Sparks New Era for Commodities, Fed Pushes Back

The sudden shift in narrative comes after the European Central Bank started cutting interest rates earlier this month and in the process reversed a 25-year precedent. Since its founding in 1999 – the ECB has never cut interest rates before the U.S Federal Reserve and the Bank of England.

Let’s not underplay it. The ECB’s break away from its long-standing tradition of historically being the last to move to the first – could now mark the beginning of a ‘new era’ for macro traders.

The ECB’s surprise move sent Gold prices skyrocketing within striking distance of the all-time high set a month earlier, in May.

The bullish momentum also split over into other precious metals with Silver, Platinum and Palladium prices soaring to multi-year highs.

And then, just when traders thought the Federal Reserve would follow in the footsteps of the ECB – the Fed surprised the markets last week by announcing that they expect to cut interest rates just once this year – taking a hawkish stance on inflation by holding borrowing costs at a 23-year high for the seventh meeting in a row.

The Fed’s median dot-plot projections showed policymakers forecast making only one quarter-point cut this year – which is a significant change from the Federal Open Market Committee’s last “dot plot” in March, when officials signalled three cuts in 2024.

If the FOMC’s projections hold true – it will mean that even as other central banks around the world begin trimming rates – the Fed’s first cut may still be almost six months away – after November’s high-stakes presidential election.

Bank of England’s Rate Decision Looms, But Election Uncertainty May Delay Cut

Looking ahead, interest rates will once again take front and centre stage this week as traders turn their attention to the Bank of England for clues on the precious metals next big move.

As one of the world’s “Big 3 Central Banks”, this event is guaranteed to be a major market mover – especially as policymakers have previously signaled a rate cut could be on the cards as early as June.

However, according to analysts at GSC Commodity Intelligence – a looming UK general election could force the central bank to rethink its decision.

The week’s Bank of England Monetary Policy Meeting is the last before the upcoming UK general election, which backs the case for caution.

While the BoE is proud of its political neutrality, common sense would lean towards waiting until after the election on July 4 to make a decision on interest rates. Based on data tracked by GSC Commodity Intelligence – polls suggest a new government will be in power by the time the BoE next meets in August. That will ultimately change the dynamic of economic forecasting with new tax hikes and spending plans in place.

Regardless of the outcome, any monetary policy decision from a Big 3 Central Bank – whether that’s a hike, cut or pause – always has enormous potential to move the markets significantly – bringing with it massive opportunities to capitalize on!

About the Author

Phil Carrcontributor

Phil Carr is co-founder and the Head of Trading at The Gold & Silver Club, an international Commodities Trading, Research and Data-Intelligence firm.

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