Last week, the Fed announced another rate cut on interest, the third one this year. This move lowered the rate of federal funds by twenty-five basis points and builds on prior rate cuts carried out in September and November, with the earlier one seeing the federal funds rate drop 50 basis points. Jointly, these decisions have decreased the benchmark rate by 1%, emphasizing the Federal Reserve’s response to shifting economic conditions.
The Federal Reserve hopes that by reducing its benchmark rate, it can encourage spending while staying alert to inflation, which has started rising again in recent months.
While this decision may offer relief to borrowers by lowering consumer rates of interest and making it more affordable to take out personal loans or purchase a house, it also creates a complicated environment for investors, especially those interested in safe-haven assets like gold.
So, how does an interest rate cut impact gold investing?
Well, we know that the relationship between the price of gold and interest rate is inverse, with higher prices of the precious metal being supported by lower rates. This is because the opportunity cost of holding gold reduces when the rates drop, which makes gold more attractive with an increase in demand driving its price even higher.
Apart from the decisions made by the Federal Reserve, purchases made by central banks also influence the precious metals market. This year, these purchases hit new highs, offering significant support for the price of gold.
The U.S. dollar’s strength also plays an important role in gold pricing, although factors like global capital flows, trade balances, and relative economic growth rates can negate this effect.
Is this the time to invest in gold?
Deciding on whether to invest in gold depends on various factors, including market conditions, risk tolerance, and financial goals. The recent drop in rates of interest is a convincing argument to invest in the precious metal, especially if you seek a hedge against currency fluctuations and inflation.
It is important that you consider the possible risks tied to investing in this precious metal though, especially since a shift in some variables could dampen the metal’s short-term prospects.
Investors who’d like to add gold to their portfolios are advised to keep in mind that the metal should only occupy no more than 10% of your portfolio’s value. Experts advise that the precious metal be balanced with assets like bonds and equities to ensure that one can maximize returns while reducing risk.
For those looking to invest in gold stocks, it is advisable to select a couple of companies like GEMXX Corp. (OTC: GEMZ) and study their financials before getting comfortable enough to choose the firms to invest in.
NOTE TO INVESTORS: The latest news and updates relating to GEMXX Corp. (OTC: GEMZ) are available in the company’s newsroom at https://ibn.fm/GEMZ
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