What will happen to gold prices after the Fed cuts rates?

Investors have been keeping a watchful eye on gold's price trends over the past several months — and for good reason. The precious metal has been on an impressive bull run since the start of 2024, with its value reaching new record highs multiple times so far this year. This trend began in early March, with gold prices surging to $2,160 per ounce, up 8% compared to the previous record in December 2023. That record was quickly surpassed by subsequent peaks in April, May, August, and most recently, on September 16, when the price climbed to above $2,584 per ounce. With the latest milestone, gold is up by an astounding 25% since the start of the year.

However, the economic landscape that has allowed gold to thrive is rapidly shifting. For starters, inflation, which had been a primary concern for policymakers and investors, has cooled dramatically compared to the heightened levels seen in recent years, and the employment market is slowing down, too. As a result, the Federal Reserve is expected to implement its first interest rate cut of the year this week — and that could have far-reaching implications for various asset classes, including gold. So what can we expect to happen to the price of gold when the Fed finally cuts rates? That's what we'll break down below.

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What will happen to gold prices after the Fed cuts rates?

The relationship between interest rates and gold prices has historically been inverse, with lower rates typically supporting higher gold prices. So, as the Federal Reserve prepares to cut rates, many analysts maintain a bullish outlook on gold. There are several factors to consider when projecting the potential trajectory of gold prices in this new economic environment, though. 

For starters, there's a significant chance that the expected rate cut has already been partially priced into the market. So, the Fed rate cut may not have as big of an impact as you'd expect on gold's price this week. The price of gold is also influenced by a complex web of factors, with the strength of the U.S. dollar, global economic growth prospects and inflation expectations all playing roles in gold's price trajectory. 

But while the Fed's upcoming rate cuts may not have an immediate impact on gold's price trajectory, many analysts believe that there is still room for gold prices to rise further in the coming months. Goldman Sachs' analysts, for example, expect a target gold price of $2,700 per troy ounce for early 2025, while other experts expect even bigger price increases for gold in the coming months.

There are a few different drivers behind these expectations, one of which is the unprecedented level of central bank demand for gold. Over the last couple of years, central banks across the globe have dramatically increased their gold holdings. This shift in central bank behavior has altered the traditional dynamic between gold prices and interest rates, potentially providing a more robust floor for gold prices even as rates fluctuate.

Sustained demand from investors is also helping to drive the price uptick and will likely play a role in future price growth. As more investors buy gold to capitalize on its upward price trajectory (or gain access to the many other benefits it offers), the price of gold is likely to climb. 

Ongoing geopolitical conflict also plays a crucial role in gold's appeal — and the potential for it to grow in price over the coming months. As tensions persist in various parts of the world and concerns about U.S. debt levels grow, gold's status as a safe-haven asset is likely to be reinforced. This could lead to increased demand from both institutional and retail investors seeking to diversify their portfolios and protect against potential market volatility.

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Is this the right time to invest in gold?

Determining whether it's the right time to invest in gold depends on various factors, including your financial goals, risk tolerance and overall portfolio strategy. For the right investor, though, the current economic climate and market conditions may present an opportune moment to consider gold as part of a diversified investment strategy.

After all, gold has historically served as a hedge against inflation, currency devaluation and economic uncertainty. And with the Federal Reserve poised to cut interest rates and global economic uncertainties persisting, gold's appeal as a safe-haven asset may increase. So if you're concerned about potential market volatility or want to diversify your portfolio, allocating a portion of your investments to gold could provide a measure of stability and protection.

The ongoing demand from central banks, particularly in emerging markets, also suggests a fundamental shift in the perception of gold as a reserve asset. This increased institutional demand could provide long-term support for gold prices, potentially making it an attractive investment for those with a longer time horizon.

However, it's crucial to approach gold investment with a balanced perspective. While gold can offer portfolio diversification and potential protection against economic downturns, it does not generate income like dividend-paying stocks or interest-bearing bonds. Gold prices can also be volatile in the short term, so it's best to view this investment as a longer-term option.

The bottom line

The upcoming Fed rate cut could have an impact on gold's price this week, but it may not be as significant as you'd expect. But even if the Fed rate cut has little impact on gold's price, the precious metal continues to be a beacon of stability for many investors. Whether this is the right time to invest in gold will depend on your circumstances, but for those looking to add a potentially stabilizing element to their portfolio, gold remains a smart option to consider.