Gold, Silver Dip as Fed Cuts Rates for First Time Since 2008

Both gold and silver prices slipped marginally on Wednesday (July 31) after the US Federal Reserve cut interest rates by a quarter point to a range of 2 to 2.25 percent. The news caused a rally in the US dollar, sending both the precious metals on a downward trajectory.

After the two day meeting, the Fed made the decision to cut interest rates for the first time since the financial crisis in 2008 on the back of economic growth concerns and quieted inflation.

“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower rates,” the Federal Open Market Committee, led by Jerome Powell, said in a statement after the meeting in Washington.

Following the news, the benchmark two year yield rose to 1.84 percent and the 10 year climbed to 2.03 percent. As the greenback rose with the interest rate cut announcement, gold and silver lost some of their appeal as safe haven assets.

However, the metals did not experience a drastic loss, as the Fed did not broadcast what might happen to interest rates as the year progresses.

“The Fed statement was very carefully crafted to not make suggestions of the next move — it is very much a ‘wait and see’ approach after this one interest rate cut,” Chantelle Schieven, research head at Murenbeeld & Co., told the Investing News Network (INN) via email.

“If global conditions, i.e. global trade, worsen, and economic data is weaker, then the Fed could cut again by year end. But if economic data is about the same or better, the Fed is likely to hold for now,” she continued. “The uncertainty surrounding the next move by the Fed will likely create additional volatility around each major US data release, and the upcoming Fed statements, until a more solid direction is projected by the Fed.”

In addition to the cut, it was also announced that officials will stop shrinking the Fed’s balance sheet as of Thursday (August 1). This move will end a process that modestly tightened monetary policy and was previously scheduled to come to a close at the end of September.

Despite their initial decline after the cut was announced, many market watchers do not believe gold and silver will stay on the decline.

EB Tucker, a director at Metalla Royalty & Streaming (TSXV:MTA,OTCQX:MTAFF) and the mind behind two publications at Casey Research, told INN on the sidelines of the Sprott Natural Resource Symposium that he believes that the Fed’s decisions moving forward will be beneficial for the yellow and white metals.

“The Federal Reserve made some statements that they were going to take seriously the notion of making the money supply softer. And historically … they never do a little bit of loosening. They start loosening and they tend to loosen for awhile, so to me that meant, ‘Here it comes,’” he said.

Tucker went on to forecast relatively big gains for both gold and silver. “You’ve got to be in this market. Gold’s going to hit US$1,500 (per ounce) and silver’s going to hit US$20 (per ounce), and there’s not going to be a break before that happens. Investors need to really think about that — you’re not going to get a chance between now and US$1,500.”

As of 3:29 p.m. EDT on Wednesday, gold was down 0.85 percent, trading at US$1,418.30; silver had slipped 1.54 percent and was changing hands at US$16.29.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.