Gold prices are again hitting new all time highs on Monday morning. The Federal Open Market Committee (FOMC) convenes on Tuesday morning and concludes Wednesday afternoon, culminating in a statement and press conference led by Federal Reserve Chairman Jerome Powell. Recent market sentiment has shifted, with a slight preference now emerging for a 0.5% interest rate reduction, in contrast to earlier expectations of a 0.25% cut. According to the CME FedWatch Tool, there is currently a 67% probability of a 50 basis-point decrease, while the chances of a smaller 25 basis-point reduction have decreased to 33%. Additionally, both the Bank of England and the Bank of Japan are scheduled to hold their regular monetary policy meetings on Thursday. The price of gold is trading at $2577.58, down $4.87. The price of silver is trading at $30.86, up 13 cents.

Senator Elizabeth Warren, along with Senators John Hickenlooper and Sheldon Whitehouse, urged the Federal Reserve to cut interest rates by 0.75% at its upcoming meeting on this week. In a letter to Fed Chair Jerome Powell, the senators argued that such an aggressive rate cut is necessary to prevent the economy from sliding into a recession. They claimed that the Fed’s delays in cutting rates have already threatened the economy and left the central bank “behind the curve”. However, this request for such a large rate cut is seen as unusual and potentially politically motivated, given the proximity to the November presidential election.

A 0.75% rate cut would likely have significant impacts on the economy and financial markets. Lower interest rates generally stimulate economic activity by making borrowing cheaper for businesses and consumers. However, such a drastic cut could also signal economic distress and potentially fuel inflation concerns. Regarding gold prices, a rate cut of this magnitude would likely be very bullish for gold. Gold prices tend to rise when interest rates fall, as lower rates reduce the opportunity cost of holding non-yielding assets like gold. Additionally, rate cuts often weaken the U.S. dollar, which typically boosts gold prices as the metal becomes cheaper for holders of other currencies. Indeed, gold prices have already been rallying to record highs in anticipation of potential rate cuts, with spot gold reaching $2,588.29 per ounce in recent trading.