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The Federal Reserve is expected to cut the Fed Funds rate grow later this year as inflation coolsWhile many talk about how that can impact borrowing costs and interest rates on depositsThe impact of changes in the federal funds rate could be more far-reaching than that.
Changes in the federal funds rate can cause movement in other areas, such as the stockbond and precious metals markets. If the Fed cuts its benchmark rate, demand for gold could increase, pushing its price higher. And that would be a welcome move among gold investors. But why exactly would a rate cut gold price to get up? We asked experts for clarification.
Compare your gold investment options to profit from the current gold price.
Why the expected interest rate cut could be good for gold
As inflation cools, many experts expect the Federal Reserve to cut the federal funds rate. And that may be good news for gold investors. “With a rate cut now almost certain, the impact on gold could be positive,” explains Rick Miller, a financial planner and investment advisor at financial planning firm Miller Investment Management.
Lower interest rates could boost demand from retail investors
As interest rates begin to fall, gold will become less valuable Safe haven competition – which could lead to greater demand and higher prices. “Savers have benefited from higher interest rates compared to the previous decade, when interest rates were ultra-low,” explains Noah Damsky, CFA, principal at financial planning firm Marina Wealth Management.
“Lower interest rates can stimulate investor demand because fixed-rate instruments are less attractive and there is therefore less competition for investors’ money,” Miller said.
They say we could see a change in the market after the Fed’s first rate cut.
“Once we get the first rate cut, sentiment will change,” Damsky says. “Investors will shift their focus to when and how often the Fed will cut rates, not whether they will go down. As rates come down, you’ll see savers move out of bonds and into other asset classes like gold.”
Use gold to prepare for the coming rate cut.
Gold could benefit from higher consumer demand
Lower interest rates could stimulate lending and consumer spending. And while that could potentially increase inflation, increasing demand for gold, it could also positively impact the gold price in another way.
When consumer spending increases, consumer demand for gold-related goods such as jewelry, electronics and more may increase. And that increase in consumer demand could help the growth in commodity prices.
it comes down to
If the Federal Reserve cuts interest rates soon – as most experts expect – the price of gold could rise. As interest rates fall, demand for interest-based safe-haven investments such as bonds may decline, leaving a safe-haven void in many portfolios that gold could fill. And that could cause demand for gold – and its price – to rise.
At the same time, lower interest rates could stimulate economic activity and greater consumer demand. Lower lending rates could make consumers more likely to buy gold-oriented products such as jewelry.
Compare your gold investment options before the Fed cuts rates.
