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Daily / Weekly Gold commentary
The Federal Reserve, also lovingly known as “The Feds,” is the primary driver of the US Monetary policy. The focusing roles of the Feds are keeping inflation in check and sorting out employment issues. The strongest asset that the Feds hold is the Fed Interest Rate, which influences the flow of money, essentially.
As interest rates get higher, borrowing becomes more expensive, credit gets tighter, and consumers ease down on spending. On the flip side, when the fed interest rate goes down, money will flow with little resistance. As a result of these rate changes, the market reacts in different ways across the board, as we can see with the pricing of precious metals.
Gold interest rate sensitivity is a very real thing. When interest rates are low, gold and silver shine brighter because they do not compete with interest-bearing assets. On the other hand, when rates go up? The metals may dip temporarily, and the savvy investors know how to interpret the signals and act accordingly.
Rising Interest Rates: What It Typically Means for Gold
Conventionally, as the Fed interest rate increases, you can see the value of the US Dollar appreciating. Although it isn’t necessarily good news, as it becomes more difficult for international buyers to purchase gold. In turn, it affects the economy.
Gold pays no interest, so as rates rise, it might appear less attractive compared to bonds and savings accounts that begin to offer actual returns. It’s not that gold is losing value; it’s just getting overshadowed for the time being.
However, gold is not just an investment; it is also insurance. Even in a higher-rate environment, concerns of war or general market crisis can send gold prices up. History is a testament that emotion can often beat mathematics at the games we play with metals.
Falling Interest Rates: The Bull Case for Precious Metals
When the fed interest rate falls, the dollar sometimes takes a break. When the dollar is weak, and you get inflation scares, the gold index is ready to take off. Plus, lower rates mean that the opportunity cost of owning non-interest-bearing assets like gold shrinks.
As equity fiat heads sideways, gold and silver investments have a chance to shine. During these times, metals can act as a safe-haven asset, preserving wealth when cash loses value. Silver gets a double boost right now as both a monetary and industrial metal.
The rise of gold amidst stimulus was seen clearly in March 2020. The rate cuts and inclusive stimulus shook up the market, and gold simply ascended to the moon. The thing that provides momentum for gold is the real rate of interest (the nominal rate minus inflation), and when it goes negative, metals perform on average quite well.
How Silver Reacts Differently to Fed Moves
Silver can be a bit of a mystery. Because it is a monetary asset and an industrial metal, its price reaction to the Fed interest rate and Fed meetings is not always crystal clear. Silver price moves concerning both economic data and the day-to-day mood of the market.
When the Fed raises rates and the economy slows down, silver’s industrial demand (in fields of EV, solar panels, and tech) can decline, in turn pushing precious metal prices lower. However, usually, rate cuts trigger short-term speculative and safe-haven demand, and boom, silver prices shoot up.
Silver can be a lot more volatile than gold, but that volatility has its advantages, specifically its upside potential under the right environment. That is why smart investors often hold both.
If you’re looking to diversify with silver, Pacific Precious Metals offers a wide range of silver products to suit any investment strategy. Visit us in California at our locations in Fremont, Palo Alto, Sausalito, or Walnut Creek.
Long-Term vs. Short-Term Outlook: What Smart Investors Do
With the dizzying price charts on a day-to-day basis, it's hard for anybody not to be vertigo-stricken by the fluctuations. But the smart long-term investors already know that to preserve wealth over time, it is more important than trying to make short-term gains. That’s where gold and silver truly shine.
Metals serve as a hedge against government uncertainties, economic inflation, and any central bank mistakes. After all, metals help to balance a long-term portfolio over time, especially when the Fed interest rate rollercoaster is on its wild ride.
Most of us use a dollar-cost averaging strategy by purchasing gradually through reputable companies like ours, Pacific Precious Metals. In the words of economist Ray Dalio, “If you don’t own gold, you don’t know history or economics,” and we couldn't agree more.
How to Navigate Fed Rate Uncertainty with Pacific Precious Metals
When the market feels like a guessing game powered by the Feds, it's nice to have an expert behind you. That's why we recommend talking to a Pacific Precious Metals strategy specialist to create a plan that lines up with your goals and risk tolerance.
Whether you are looking in the 1g gold bar range, monetary heavyweights like silver kilos, fractional coins, or nice, neat silver rounds, we have a broad range of options for each type of investor. From those just getting started to those expanding their portfolios, there is a product for trusted, industry-leading products. Start your smart investments in precious metals with us now!
