Key information
- The Fed’s half-point interest rate cut in September was reversed due to the current strength of the economy.
- The price of gold fell about 8 percent in November, losing around $225 (211.50 euros) an ounce.
- The Federal Reserve’s cautious approach is having a negative impact on gold’s performance.
The impact of the Federal Reserve’s change in position
The Federal Reserve’s change in stance has had a ripple effect on financial markets, particularly precious metals. A recent half-point rate cut implemented by the Fed in September, aimed at boosting economic growth amid signs of a slowing jobs market, has been reversed. Now, Chairman Jerome Powell is emphasizing a cautious approach, indicating that current economic strength allows for deliberate decision-making on interest rates.
Effects on gold and silver prices
This change in sentiment is reflected in the bond market and the performance of gold and silver. The price of gold fell about 8 percent in November, losing around $225 (211.50 euros) an ounce. Silver also saw a decline, losing around $2.50 (2.35 euros) per ounce during the same period. This downward trend stands in stark contrast to concerns previously expressed by Mr. Powell about a potential slowdown in the jobs market and falling inflation rates.
Interest rates and performance of gold
The Federal Reserve has not yet reached its target inflation rate of 2 percent, although it remains close to the goal. Historically, gold tends to perform better when interest rates are lower. The current trend of continued high interest rates appears to have a negative impact on gold prices.
Additional pressures on gold and silver
Additionally, the strengthening of the US dollar since the election of former President Donald Trump has also put downward pressure on gold and silver. Traders are divided on the outcome of the next FOMC meeting scheduled for December 18, with some anticipating a quarter-point rate cut while others predict no change.
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