Q. WILL A 125BPS CUT IN INTEREST RATES DRIVE UP GOLD?
A. Remember when it comes to interest rate cuts it means the following:
Stimulates economic growth
This makes borrowing cheaper as interest rates are lower.
And it encourages more spending and investments by individuals and businesses.
Boosts buying from consumers
Also, with low interest rates it entices people to buy more.
And this is because the cost of loans drops.
This leads to them buying more homes, cars, and other goods.
There are other elements, but you get the idea.
Now, lets consider why lower interest rates could mean the gold price will rally
Reason #1: Lower interest rates and a weaker US dollar helps the gold price
When interest rates drop, the yield on bonds and savings accounts typically declines.
And a weaker dollar makes gold cheaper for people with other currencies.
It's like gold goes on a global sale, and everyone wants a piece!
So, this will drive up its demand and the price.
Reason #2: Investors get out of low yielding markets and into gold
Remember that when interest rates are high, investors move to high yielding markets.
They like to keep their money in the banks, bonds, money market or any other high interest savings accounts.
But when interest rates drop, investors don’t make much of their money from these assets.
And so, they will look to invest in markets like gold, which will drive the price up.
Reason #3: The golden safe-haven will prevail!
With interest rate cuts, it normally signals signs of economic uncertainty or weakness.
And during these times, investors will often seek out safe-haven assets.
Gold is a classic example of a safe haven that investors will look to buy.
And this golden attraction will help push the price up.
