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Rate Cuts in 2024? The Fed’s Impact on Gold and Silver Prices

Investor looking at rate graphs

2023 was the year of rising interest rates. Could 2024 see rate cuts?

It seems possible, given the Federal Reserve’s recent guidance. As markets digest the possibility of rate cuts in 2024, we look at the gold and silver spot markets to see what falling interest rates could mean for precious metal investors.

Are Interest Rate Cuts Coming in 2024?

In late December 2023, Federal Reserve officials concluded that interest rate cuts are likely in 2024. They provided very few details of how those cuts may come about, however.

The Fed’s meeting minutes suggest that up to 3 rate cuts may be coming in 2024. At the same meeting, Fed officials determined to keep the current benchmark rate steady at 5.25% to 5.5%. Considering rates have been rising steadily since 2022, this leveling off of rates does signal a change of pace for Federal Reserve policy.

There’s still uncertainty around how things will proceed, however.

“In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves.”

Policymakers have also not ruled out additional rate increases, should they be necessary to reach policy goals. A lot remains to be seen – and will be influenced by the direction of the economy.

What Do Interest Rates Have to Do with Gold Prices?

The interest rate environment has a significant effect on just about every asset price, not just gold. Investors closely watch the Federal Reserve’s meetings for any signs of policy changes.

For gold specifically, interest rates affect gold prices because:

  • Rising interest rates create more demand for stocks and bonds
  • Inversely, falling rates make equities and bonds less attractive
  • Falling interest rates boost demand for gold and other alternative assets, including cryptocurrency
  • Rising interest rates can also boost the strength of the dollar, weakening gold prices
  • Inversely, when rates fall, the dollar often weakens – boosting gold prices correspondingly
  • Falling rates make non-yielding assets more attractive

More broadly, the interest rate environment reflects the state of the economy and influences the appetite of investors. Generally speaking, when interest rates fall, gold becomes more attractive and gold spot prices rise.

Of course, there’s never any guarantee – asset prices are notoriously difficult to predict.

But in the short term, we’ve already seen significant movement in the price of gold, Bitcoin, and other assets. Gold hit a new all-time-high in December, and has started 2024 strong as well.

What About Silver?

Silver spot prices are less directly influenced by economic policy, compared to gold. Interest rates still affect the price of silver, but the correlation is less direct. Silver prices are influenced more strongly by industrial demand.

Gold is a substantially more important asset, on a global scale. Gold’s market capitalization is over $13 trillion, compared to silver’s ~$1.3 trillion market cap.

Silver has underperformed as of late, and the gold to silver ratio is skewed in favor of gold.

If you’re a long-term precious metal investor, you may wish to consider which metal is comparatively a better deal in this interest rate environment.

What’s Next for Gold and Silver Prices?

The short answer is that nobody knows! Asset prices are nearly impossible to predict.

That said, there are significant tailwinds for the price of precious metals. The Fed is likely to drop rates in 2024, which typically boosts alternative asset prices. Of course, some of that may already be priced in — gold has surged by around $100 per ounce since December’s Fed meeting.

March 2024 Update: Alternative Assets Surge on Rate Cut News

Updated for March 2024

The rate cut enthusiasm has continued into March, with many asset prices rising across the board. Gold is again flirting with an all-time high, while prices of cryptocurrencies have surged to levels not seen in years.

This rally is driven by the expectation for rate cuts. At the same time, the Fed hasn’t made any official changes – in fact, they have signaled that there is “no urgency” to cut rates, given the strength of the US economy. But with potentially two rate cuts expected (but not guaranteed) by the end of the year, traders are banking on the Fed to follow through.

With Investing, a Long-Term Strategy Pays Off

While these short-term movements in spot markets are exciting to watch, most investors can benefit most from a long-term strategy. The buy-and-hold method is a tried and true way to build wealth. Diversification of your investment portfolio is also key.

Whether you’re buying or selling, we hope that you’ll trust Bellevue Rare Coins for all your gold and silver needs. We were recently voted the best gold & rare coin shop in the PNW by the Seattle Times, and we’ve proudly served our community for over 40 years.

Want to move forward? Stop by our stores, see our live bullion pricing here, or learn more about selling to Bellevue Rare Coins here.

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