Comprehensive hedging tool! No matter how the Federal Reserve cuts interest rates, gold can hedge against everything.

As concerns about the US economic recession intensify, the appeal of gold as a safe-haven asset has increased, driving its price to historical highs, closely related to market expectations of Fed rate cuts. However, even if the Fed takes unexpected action, gold may prove itself to be a "comprehensive tool for hedging risks no matter what happens." Brien Lundin, editor of Gold Newsletter, points out that as the Fed actually cuts rates or approaches decision day, the market may face the risk of "buy the rumor, sell the fact." However, the allocation of gold in global portfolios is increasing because whether the Fed is gradually cutting rates or making emergency cuts in an economic downturn, gold has the opportunity to perform well. On Thursday, gold continued to rise even as the stock market fell and the US dollar rose. Subsequently, as the stock market rebounded and the US dollar index fell, gold continued to rise. Lundin stated that this demonstrates that gold has established itself as a hedge tool for "whatever happens next." On Friday, December gold futures rose $30.10, up 1.2%, to close at $2610.70 per ounce, reaching a historical high of $2614.60 per ounce during trading. Last week, gold prices rose by 3.4%, marking the 34th historical high of the year. Currently, the short-term drive for gold prices comes from momentum in Western markets, especially in anticipation of an upcoming rate cut by the US. Joe Cavatoni, senior market strategist at the World Gold Council, stated in Thursday's commentary that the Fed will announce its monetary policy decision next Wednesday. As of Friday morning, the CME FedWatch tool showed a 57% probability of a 25 basis points rate cut at the Fed's upcoming meeting, with a 43% chance of a 50 basis points cut. Lower rates typically support gold, which yields no interest. Cavatoni believes that although the market's expectations of rate cuts are reflected in the rise in gold prices, this impact has not been fully realized. He expects that rate cuts may drive gold prices further up in the coming weeks and lead to an increase in investor demand. Diversity in gold demand Cavatoni pointed out that as a global asset, the World Gold Council has always been monitoring "all forms of gold demand," especially in the context of gold prices hitting new highs, indicating that demand may be changing. He mentioned that the council is closely following the flow of jewelry demand in Asia to observe the performance of investment demand in the region. Meanwhile, they are also evaluating other demand factors from Western investors, such as increased uncertainty from upcoming elections, and gold as a tool for hedging "emerging risk events." Central bank demand remains a major driving factor for gold demand globally, with purchases in 2022 and 2023 reaching the highest levels in 14 years, reflecting ongoing concerns about US dollar-based assets and inflation. In addition to central bank demand, traders seem to have a stronger preference for certain forms of gold investments. Adrian Ash, research director at BullionVault, pointed out that current activity in the gold market is mainly focused on speculative trading of derivative contracts rather than physical gold. Users of the platform recently chose to take profits as gold prices hit historical highs, while coin dealers were flooded with second-hand products. According to Ash, trading volume in gold futures contracts on the CME derivative exchange surged by more than 26% on Thursday, while trading volume in gold options contracts skyrocketed by 80%. Meanwhile, the world's largest gold-backed ETF, the SPDR Gold Trust, grew by 0.9% in September. Although gold demand on the BullionVault platform increased by 14% in the last 24 hours, sell volumes surged by 298%, resulting in net clearing approaching 0.1 metric tons. Ash believes that investors chose to take profits as gold hit historical highs in USD, EUR, and GBP mainly due to lack of leverage trading and market fear, with gold's rise more driven by expectations of the Fed rate cut rather than geopolitical tensions. Nevertheless, Ash also acknowledged that "geopolitical conflicts and tensions are providing support for the upward trend in gold." This is mainly due to sustained demand for gold from emerging market central banks, but it is speculation about the Fed's rate cut that is currently driving gold to new highs. Ash warned that if the Fed disappoints the market at its policy meeting next Wednesday, whether in the decision itself or in new dot plot forecasts, it may provide an opportunity for long-term investors expecting a pullback, or even trigger a correction.