How interest rate cuts affect the price of gold
When the Federal Reserve lowers interest rates, the opportunity cost of holding gold decreases. Gold, which does not earn interest, becomes more attractive compared to interest-bearing assets such as bonds. As a result, investors often turn to gold in a low-rate environment, driving up its price.
“Gold prices tend to rise as the Federal Reserve moves towards a rate cut. This creates favourable conditions for further gains in the precious metal,” Sugandha Sachdeva, founder of SS WealthStreet, told CNBC-TV18.
Gold prices are already meeting expectations
Gold prices Gold prices had already reached an all-time high in August, when a rate cut by the US central bank began to look inevitable. However, global gold prices fell just after the latest US jobs report on 6 September.
“The concern is that the Fed will cut 50 and that it will be a one-time measure, which would not bode well for the gold market,” Phil Streible, chief market strategist at Blue Line Futures, told Bloomberg on Friday. “Gold needs to see continued cuts” for the next leg up, he added.
The quarterly average of new nonfarm payrolls in the United States has fallen to the lowest level since mid-2020. However, looking more closely, the US economy remains strong despite interest rates being at their highest level in 23 years for more than 13 months.
What will happen if the Fed aggressively cuts rates?
If the Fed opts for a larger rate cut, such as 50 basis points, gold could see an even sharper rally. Aakash Doshi, head of commodities at Citi Research, noted that the market is closely watching the situation.
“An aggressive cut will further boost gold prices as investors seek safe haven assets in a weaker economy,” Doshi said.
Gold outlook amid Fed rate cuts
According to experts, the rest of 2024 looks promising for gold. Many believe that gold prices It could test new highs in the coming months, particularly if the Fed cuts rates aggressively.
Colin Shah, Managing Director, Kama Jewelry, expects the positive trend to continue, supported by macroeconomic volatility and upcoming elections in several countries. The festive season, including Dhanteras, is likely to see higher demand for gold. This may boost the prices To new heights.
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