Why Has the Upcoming Fed Meeting Not Bumped Gold More?

The odds are set at 94% that the federal reserve will cut rates following the September 17th meeting. Trump has pressured Powell for this for months, and if the Wednesday meeting confirms these rate cuts, it will be a historic step for the Fed. Never before has Executive Branch’s control of money been seen so evidently. This period of uncertainty has the price of gold near historic highs, but the price still does not fully reflect the reality of the upcoming situation. Investors are flocking to gold like never before, but are still not buying enough to account for the huge potential for gold price increase. The first reason investors are still holding back on gold is uncertainty. The upcoming actions of the Fed are as predictable as political actions can be, but the human element of the decision still scares them away. Additionally, investors don’t understand the extent to which the dollar has been undermined from every direction. Finally, most investors are only weighing the short term effects of the rate cut rather than the long term irreversible consequences.

The price of gold has uncertainty just like any investment, but the specific type of uncertainty that is determining its price in this situation is more uncomfortable for investors to deal with. The likelihood of a rate cut is very high, but the fact that it is a human choice adds in a layer of unknown that is not as easily quantified. Jerome Powell could wake up on Wednesday morning and decide to raise rates. Many trends used to predict stock prices are swings or things far outside of the control of any one human being, but the inherently human nature of Wednesday’s choice means that it’s hard for people to go all in. Many types of risk can be quantified, but even with oddsmakers setting probabilities on Wednesday’s decision, it is inherently more difficult to reduce Jerome Powell’s decision to a number. The deeply interpersonal dynamics between him and President Trump make this situation one that could be changed by a tweet. An uncomfortableness with this sort of risk is holding investors back from buying gold as aggressively as they could be. …