How Will the Fed Rate Cut Impact the Gold Market?

Gold sold off modestly after the rate cut decision and Powell’s post-meeting press conference. Analysts at Metals Focus said the consolidation wasn’t remarkable.



Beyond the short term, analysts say, “The macroeconomic and geopolitical backdrop remains supportive of gold investment and prices,” and that there will likely be strong buying support with price dips.

Money Metals also expects further rate cuts. While the messaging coming out of the FOMC meeting was somewhat conservative, there will likely be continued pressure from the White House to cut more aggressively. There is also some division among committee members. Trump appointee Stephen Miran advocated for a half-point cut, and Trump will get to appoint a new chair next year.

Further softening of economic data could also speed up the rate of cutting.

Meanwhile, Metals Focus analysts think persistent inflation pressure will support gold

It will be important to pay attention to real rates moving forward.

When interest rates are higher, there is an opportunity cost to holding gold or silver when you could own bonds that generate interest income or stocks that pay dividends. However, when real interest rates fall or turn negative, those income-producing alternatives lose their comparative advantage. In such an environment, the relative cost of holding precious gold and silver diminishes, making the metals more attractive as safe-haven and wealth-preservation assets.

Metals Focus expects equities to continue to push higher in the current market environment, supported by the stimulative effect of looser monetary policy.

With or without rate cuts, the geopolitical uncertainty will likely continue, at least in the near to mid-term. Metals Focus notes that geopolitical tensions have "eased somewhat from earlier this year," but you can't rule out renewed instability.

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One also has to consider the possibility of a recession. While the mainstream has pretty much written off an economic downturn, the reality is that this debt-riddled, bubble economy has not cleansed the malinvestments and misallocations created by the monetary malfeasance in the wake of the Great Recession and during the pandemic. A downturn would undoubtedly provoke the Fed to cut rates more quickly -- likely to zero. It would also likely mean a resumption of quantitative easing. This would result in ramping up inflationary pressure even higher than it already is.

All in all, the move toward looser monetary policy is predominantly bullish for gold (and silver).
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