The Federal Reserve September 17-18 FOMC meeting is poised to deliver the first interest rate cut in over four years, marking a historic policy pivot. CME FedWatch Tool currently prices a 72% probability of a 25-basis-point cut to 5.00-5.25%, with a 28% chance of a larger 50bp reduction.
Historical precedent strongly favors gold in rate-cutting cycles. Analysis of the last six Fed easing cycles shows gold averaged an 18.2% gain in the 12 months following the first rate cut, with positive returns in five out of six instances. The 2007 cycle delivered the strongest returns, with gold surging 47% in the subsequent year.
A 25bp cut with dovish forward guidance would likely produce a buy-the-fact rally in gold. A surprise 50bp cut would likely trigger an immediate $50-80 spike. The dot plot will be equally important — markets are pricing roughly 200bp of total cuts through end-2026.
