How is the 2nd U.S. Fed rate cut in 9 days going to affect the metals markets?

The upcoming U.S. Presidential election in November has sparked international interest into the state of the U.S. economy. Leading economic commentators are pointing to a looming recession, and some are even suggesting that we are already there. The price of gold has been a leading economic indicator for the international economy for decades. The prices of gold are known to reflect the monetary, political and economic stability within its respective countries. In particular, the rising cost of gold per ounce within the U.S., points to a troubling economy and the potential lack of confidence in the U.S. dollar among the American citizens. When investors lose faith in the currency of the country or if they are just unsure, they often turn to gold or other metals as solid investment alternatives.

In a 9-1 decision today, the U.S. Fed made their 2nd interest rate cut within 9 days. This half point rate deduction lowered interest rates to 3%. Although the Dow jumped temporarily following the rate cut announcement by over 200 points, it ended the day down 37.47. While the rate cut was encouraging to some investors, the Fed’s commentary about the overall health of the economy was dismal. More rate cuts can be expected at the next scheduled meeting of the Fed in March.

The Fed’s decision lowered the U.S. dollar against every major currency that it is benchmarked against. In fact, over the past 5 months, the U.S. rates have gone from the 4th highest among developing countries, to the 4th lowest demonstrating the dramatically weakening state of the economy.

While the weakening U.S. dollar and failing economy are damaging for some, the inverse relationship to the price of gold is a great sign for gold investors and gold miners. Decreasing interest rates and the weakening of the U.S. dollar in global economies creates bullish signs for the gold economy.

Following the decrease in rates, the gold futures market hit a new all time high during trading, of 942.20 on Wednesday. Spot gold prices closed today at 921 per ounce, down 4.50 from the day before. Gold trading remained mostly negative throughout the day in anticipation of the Fed decision regarding rate cuts. Gold markets were up across the world as well, creating the need for a boost in gold production to meet the demand. With the increased confidence in the precious metals sector, we can expect to see a surge of investment dollars and possibly new investors into this market over the next few months. The rate cuts and the weakening dollar are positive signs for all the precious metal markets worldwide.

While gold has made most of the headlines this year so far, silver has been holding its own ground. Silver’s use within the economy has deviated from the once popular photography uses into areas such as: superconductor components, water purification agents, plasma televisions and into the medical field as a bacterial reduction agent. These recent additions of silver use within the global marketplace have made this metal more attractive to international investors. Silver generally trades in line with gold, at 50-60x the dollar value amount per ounce. With the Fed rate cut announcement today, silver had a volatile day, but holding at 16.750. With the markets still open, it is possible to see it rise even higher. Most experts are bullish on the silver market for the rest of the year, and some are suggesting that it may even become more attractive to investors than gold.

Investors who are active in the metals markets are anticipating a surge in prices in the months to come. They are watching with anticipation in particular to the U.S. economy and its overall health to gauge where the prices are likely to head in all metal markets.