Strategist Kerry Sun's historical analysis indicates that gold often performs poorly in the short term during crises but rebounds in the long term after interest rate cuts.
Sun wrote in "Market Index": "The gold price is reaching new highs, hovering at a record level of $2,516 per ounce."
"This surge occurred as expectations grew that the Federal Reserve would cut rates by 25 or 50 basis points in September."
Sun then examined the performance of gold prices after the start of the Federal Reserve's easing cycles over the past 30 years.
He said: "Since 1995, the Federal Reserve has experienced eight rate-cutting cycles."
Sun wrote: "These are the forward returns of gold after the first rate cut in a given cycle."
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He then shared a summary table showing the performance of gold over different time periods after the first rate cut.
Sun observed that on the day of the first rate cut, "gold tends to rebound, with an average increase of 1.6%, positive 75% of the time."
However, a month later, "gold begins to struggle, with an average decline of 2.5%, positive only 37.5% of the time.
But after 6 to 12 months," the return rates are overwhelmingly positive, with an average increase of over 7.7%, and positive more than 75% of the time."
Sun also listed some key factors that precious metal traders need to consider when entering the gold market.
First, contrary to intuition, although gold is a safe haven, it does not necessarily rise during periods of economic and geopolitical turmoil.
He said: "Although gold is generally considered a defensive asset, it does not always perform well during full-blown crises."
"During the global financial crisis, the price of gold fell nearly 30% from March to October 2008.
During the Silicon Valley Bank collapse in February to March 2023, the price fell by 7%."
This was also the case during a recent minor crisis in the market earlier this month.
He pointed out: "When the Japanese carry trade broke down (August 2-8, 2024), gold fell by 2.5%."
"This pattern may explain the poor performance in the 1-3 months after rate cuts, as gold prices eased under pressure from the dot-com bubble burst, the global financial crisis, the US-China trade war (2019), and the pandemic outbreak."
But as the economic crisis begins to recede and the market tends to stabilize, gold has always performed well.
Sun wrote: "Federal Reserve rate cuts are usually accompanied by quantitative easing policies, which increase liquidity in the financial markets and encourage lending and investment."
"In the long run, ample liquidity and low interest rates usually become tailwinds for gold prices."
Sun concluded: "Although gold prices may experience short-term fluctuations after the Federal Reserve cuts rates, historical data suggest a trend of enhanced performance in the medium to long term."
"The biggest question now is - is a left-wing crisis brewing that could push gold prices down in the short term?
Or will the upcoming Federal Reserve rate cuts take place during a period of relative economic stability?"