Conventional wisdom has long held that lower interest rates are beneficial for gold and silver prices. Conversely, higher interest rates are supposed to be detrimental to gold and silver prices.
Someone forgot to tell that to gold and silver over the past year, as prices continued to rise despite high interest rates. But since the Federal Reserve’s rate cuts last week, gold and silver prices have continued to climb.
Gold has continued to set all-time high prices, climbing to over $2,660 an ounce, while silver pushed to over $32 an ounce at one point. Even though gold and silver prices had already made nice gains over the past couple of years, the Fed’s rate cut seems to have given gold and silver a shot in the arm.
Here are three reasons gold and silver prices could continue to climb.
1. Further Rate Cuts
Both Fed officials and markets expect further rate cuts this year and next year. After a 50 basis point cut last week, the next rate cuts are expected to be 25 basis point cuts.
Yields on T-Bills, which had already fallen significantly in the weeks before the Fed’s cut, have fallen even further. Yields on 1-, 2-, 3-, and 4-month T-Bills fell 14, 14, 11, and 11 basis points the day the Fed announced its cuts, and have fallen a further 12, 13, 15, and 12 basis points respectively.
The expectation of further rate cuts is starting to be priced into bond markets already, and likely also into stock markets and precious metals markets. The further the Fed cuts rates, the higher gold and silver prices could climb.
2. Weakening Economic Conditions
It is becoming more and more apparent that the US economy is slowing down. Labor market weakness, declining consumer confidence, and high debt levels are weighing down the economy.
Looking back at previous Fed rate cut cycles, the first rate cuts came mere months before the economy fell into recession. If that pattern holds this time around, we could be looking at a recession late this year or early next year.
As the economy weakens, gold prices tend to climb as safe haven demand picks up. We saw this in 2008, as gold demand and gold prices rose as the economy weakened.
Gold prices continued to rise after the 2008 recession, hitting all-time highs in 2011. And the trend over the long term has been for gold to climb ever higher, which is one reason gold has even outperformed stock markets in the 21st century.
3. Rising Demand
Gold demand has remained strong for years, and shows no signs of slowing down. And there are a number of reasons for that.
First and foremost is investment demand for gold, whether in the form of gold bars or gold coins. Safe haven demand from investors first strengthened in 2020 during the COVID recession.
Prices hit all-time highs back then as markets tanked, and even after some pullbacks they never really looked back. Investor demand for gold remained strong over the next few years, which has helped gold hit its all-time highs this year.
Central banks have also been big buyers of gold, despite rising prices. Many central banks are building up their reserves, perhaps in preparation for what’s going to be happening in the economy in the coming months.
And an underappreciated source of demand for gold has been for Russian firms doing business with China. Due to US sanctions, payments between Russia and China have been disrupted, forcing many Russian firms to buy gold, ship it to Hong Kong, then sell it in order to make payments in China.
None of these sources of demand show signs of slowing, with investor demand likely being the strongest in the coming years as the economy heads towards an increasingly likely downturn.
Do You Own Gold?
Many Americans in 2008 watched in agony as the assets they had built up for years or decades melted away in a matter of months. But while markets fell, gold rose.
From October 2007 to March 2009, stock markets lost more than 50% of their value, while gold gained more than 25%. And gold continued to rise, hitting all-time highs in 2011.
Gold today is a good $1,000 higher than it was back then, and shows no signs of slowing down or looking back. With further rate cuts in the cards and a potential recession on the way, the stage is being set for gold and silver to repeat their 2008-2011 bull market performance.
Thousands of Americans have already taken steps to prepare themselves against what’s coming by buying gold and silver. Have you?
Whether you want to buy some silver coins to store at home, or open a gold IRA to help safeguard your retirement savings, there are numerous ways to put precious metals to work for you.
Direct cash purchases of gold and silver remain popular, and could gain in popularity as falling interest rates make savings accounts and money market accounts less desirable.
For those with retirement savings in 401(k), 403(b), TSP, IRA, and similar accounts, a tax-free rollover from those accounts into a gold IRA or silver IRA can allow you to own physical gold or silver coins and bars in an IRA, enjoying all the same tax advantages of an IRA account while simultaneously benefiting from any gains in gold and silver prices.
If you’re worried about the future, whether it’s inflation, recession, or other financial turmoil, maybe it’s time to start thinking about how gold and silver can play a role in your financial planning.
Call Goldco today to learn more about how gold and silver can help you secure your financial future.
