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Could Interest Rate Cuts Fuel Gold Prices?

Jan 30, 2024

I'm Coy Wells for U.S. money reserve. By the middle of 2023, the Federal Reserve had raised interest rates to their highest level since 2001 in a bid to fight inflation. As of the most recent meeting of the Federal Open Market Committee, or FOMC on December 13th, 2023, the central bank has not elected to cut interest rates from their current range of 5.25 to 5.5%.


However, they do project three interest rate cuts for 2024. These projections indicate that our nation's central bank may be ready to shift into a dovish direction regarding future monetary policy. The reason for these potential rate cuts are twofold. One reason is that inflation is not as strong as it used to be. And since the reason for the rate hike was high inflation, higher interest rates may no longer be necessary.

The second reason is that maintaining high interest rates for a sustained period of time could be harmful to the economy, because it constricts growth and makes borrowing more expensive. When these rate cuts happen is still uncertain. According to Reuters, stock traders and some institutions predict that the cuts will begin earlier in 2024. Goldman Sachs, for example, has predicted that the first rate cut will occur after the FOMC meeting in March. However, members of the Federal Reserve have contradicted these predictions and instead called for interest rate cuts to take place later in the year.

Loretta Mester, the president of the Federal Reserve Bank of Cleveland, says that cutting rates in March would be premature and that inflation data is not yet where it needs to be for the Federal Reserve to start relaxing rates. Likewise, Atlanta Federal Reserve President Raphael Bostic does not predict rate cuts taking place until the third quarter of 2024, following the December FOMC statement projecting interest rate cuts in 2024, the price of gold surged to a ten month high of $2,034 per ounce. In the days that followed, gold prices continued their hot streak and have since remained high.

While physical gold is often viewed as a hedge against uncertainty, it can also benefit from relaxed monetary policy, which may make gold more competitive against yield producing assets like treasuries. To learn more about the benefits of owning physical gold at home or as part of your gold backed IRA, and to receive your free gold information kit, call U.S. Money Reserve and speak to one of our dedicated account executives today.

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