The Fed's Rate Cut Has Arrived! How Have Gold Returns Performed After Previous Initial Cuts?

The Federal Reserve has announced a 50 basis point rate cut, officially starting a new round of easing. It is well-known that rate cuts are generally favorable for gold. Looking back at history, how satisfactory have gold returns been during past easing cycles?

Since 1995, we have analyzed gold's performance during the past eight Fed rate cut cycles. Historical data shows that after the Fed's first rate cut, gold returns were rather modest over the short term (1 week to 1 month). However, when the timeframe is extended to six months or more, gold's overall return rate is positive, with an average increase of over 7.7%, and the probability of achieving positive returns exceeds 75%.

Additionally, gold players have a new hero India, where imports are surging after the government slashed duties. In the state of Gujarat — a major hub for gems and jewelry export — gold imports by volume reportedly rose 429% YoY in August.

From a financial market perspective, since June, the holdings of the world's largest gold ETF have been on the rise.

This indicates that during Fed rate cut cycles, gold's medium- to long-term return rates are indeed promising. Friends interested in investing in gold might want to give it a try. Ample liquidity and a low-interest-rate environment typically provide support for gold prices over the long term, driving them upward.

However, gold is still susceptible to risk events. For instance, during the 2008 global financial crisis, gold prices fell nearly 30% from March to October; similarly, there were panic-induced drops in gold prices during the COVID-19 pandemic; and in 2023, following the Silicon Valley Bank crisis, gold prices decreased by 7%. All investments carry risks, and risk management should always be kept in mind.