The US Federal Reserve on Wednesday cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates that helped tame inflation but also made borrowing painfully expensive for American consumers.
The central bank’s action lowered its key rate to roughly 4.8 per cent, down from a two-decade high of 5.3 per cent, where it had stood for 14 months as it struggled to curb the worst inflation streak in four decades.
US Fed Rate Cut Impact On Gold Price
Gold prices in the international market held steady on Thursday after hitting a record high in the previous session.
Spot gold was little changed at $2,562.85 per ounce, as of 0319 GMT after scaling a record high of $2,599.92 on Wednesday.
U.S. gold futures fell 0.4% to $2,587.40.
“In the short-term, gold is likely to see some profit-taking in the next few days but gold’s path remains in an upward trajectory in the longer term,” said Kelvin Wong, OANDA’s senior market analyst for Asia Pacific.
“Gold is likely to reach new highs between $2,640 and $2,700 this year. Softening economic data could be catalysts for higher gold prices.”
Impact on India
Colin Shah, MD, Kama Jewelry, said that domestically, this price cut comes right at the onset of the gold-buying season in India and will reflect positively on the buying trend.
“Driven by the affinity and sentimental value of the yellow metal among the Indian population will continue to dominate buying this season and the rate cut will have less impact on the same. While we may witness some slowdown in demand for a brief period due to the shradh,” Shah added.
“We look forward to a strong festive season with a 10-15% rise in demand as compared to last year and the gold price to scale USD 2650 at the global level and Rs 78,000 domestically,” Shah added.
When the Fed cuts interest rates, it often leads to a weaker U.S. dollar. Gold is often seen as a safe-haven asset. When the dollar weakens, investors may shift their funds to gold as a hedge against economic uncertainty.
Increased demand for gold can push up its price globally, including in India.
Dr. Renisha Chainani, Head Research – Augmont – Gold For All, highlighted that gold finally touched the psychological level of the $2600 (~Rs 73750) mark in the active contract as the Fed cut interest rates after four years.
“After touching the $2600 target, gold prices are expected to see some profit booking and retracement up to $2500 (~Rs 71800) and $2475 (~Rs 71000),” Chainani said.
According to analysts, when there is a decline in interest rates, the opportunity cost of holding non-interest-yielding assets like gold decreases. A super-sized rate cut may further weaken the US currency, which is already trading near its weakest level this year.
In addition, since gold is traditionally viewed as a hedge against inflation, investors’ anticipation of rising inflation due to lower rates tends to further lift the investment demand, along with its prices, making it more attractive to investors.
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