What Does The Fed Rate Cut Mean For Gold and Silver?
On September 18, 2024, the Federal Reserve cut interest rates for the first time in four years, reducing them by half a point. But what does this mean for the economy and for investors in gold and silver?
Bullion Queen
9/19/20242 min read
Disclaimer: This is not financial advice, just my opinion. Please do your own research before making any financial decisions
---
On 9/18/2024, the Federal Reserve cut interest rates for the first time in four years by half a point.
What does this mean?
The Federal Reserve is the U.S. central bank that sets the rates at which banks borrow and lend currency to one another. Banks make currency by lending to borrowers at an interest rate, which is the percentage charged on the loan. For example, if you borrow $10,000 from a bank at a 10% interest rate, you’ll owe the principal ($10,000) plus $1,000 in interest, for a total repayment of $11,000.
The Fed raises or lowers interest rates to help manage the economy.
- Raising rates: When inflation is high, like in 2022, the Fed increases interest rates to reduce borrowing and spending. This slows down the economy by making mortgages, credit card debt, and car loans more expensive.
- Lowering rates: When the economy is sluggish, like in 2008, the Fed cuts interest rates to encourage borrowing and spending. Lower rates make it easier for people to buy houses, cars, and ect.
What does this mean for gold and silver?
In my opinion, lower interest rates could lead to an increase in the value of gold and silver. Here’s why. When interest rates are cut, it encourages borrowing, leading to more currency circulating in the economy. This increase in the money supply is inflationary. An increase in the money supply causes inflation. Just like if a car dealership only has one car but hundreds of new customers with bank loans, the price of the car will go up due to increased demand
The same concept applies to gold and silver. These metals are seen as a hedge against inflation because they are scarce and have real-world utility in things like computers, cars, and collectibles. As inflation rises due to an increase in the money supply, the price of gold and silver often follows because it takes more dollars to buy the same amount of these scarce resources.