Fed’s Gold Dip Equals Buying Opportunity for Investors

Fed Slashes Its Key Interest Rate for the Third Time This Year

The Federal Reserve cut its benchmark interest rate by a quarter of a percentage point on Wednesday, pushing it down to 4.25% to 4.5%.

The stock market fell after the Fed’s announcement and gold dipped modestly. Precious metals weakened as the Fed signaled that it would only cut rates twice in 2025, versus the previously signaled four interest rate cuts.

Wednesday’s interest rate cut marked the third reduction in monetary policy this year as central bankers attempt to support the labor market and economic growth. However, inflation has remained above the Fed’s target rate of 2% and recently has shown signs of climbing again. The central bank’s fight against inflation is far from over.

The big news from the Fed today were the central banker’s forecast for 2025 rate cuts. In September, the central bank had penciled in four rate cuts next year – today they expect only two – as the sticky battle against inflation continues.

The central bankers adjusted today’s policy statement to reflect a slower pace of rate cuts ahead with a new phrase saying “the extent and timing” of further action would depend on the economic outlook.

Dissent at the Fed

Notably, not all 12 central bankers agreed that the Fed should slash rates today. Cleveland Fed President Beth Hammock voted against today’s interest rate cut. Earlier this month, he stated that “we are at or near the point where it makes sense to slow the pace of rate reductions,” Hammock.

Inflation Simmering Hot

Policy makers are watching inflation which has been inching higher recently. In fact, the latest November Consumer Price Index (CPI) report revealed the biggest monthly jump in seven months. The core CPI rose 0.3% to a 3.3% annual rate.

Inflation has come down from the 9.1% peak in June 2022, but the Fed is finding it difficult to fully tame the inflation genie and return it to the central bank’s 2% target.

What does this mean for gold?

The initial knee-jerk reaction on Wednesday from short-term traders pushed gold lower amid the Fed’s forecast for fewer-than-expected rate cuts next year.

But with inflation still rising, gold will continue to catch a bid. Through 2024’s record-breaking rally in gold, market dips have been short-lived and used as buying opportunities by long-term investors.

Buy the dip

Indeed, Bank of America, who expects the gold rally to continue in 2025 with a target at $3,000 an ounce, is on the record advising its clients to buy gold on price retreats. Their advice? If gold drops below $2,500 – buy it.

However, given the strong investor demand, a clip toward that level is unlikely to emerge and buyers need to be nimble and jump in the market quickly to accumulate gold while it is on sale. Lower gold prices mean investors can trade fewer dollars for more gold.

Even more inflation ahead?

Peering into the crystal ball for 2025 there are policy proposals on the table that could boost inflation even more, including tariffs and mass deportations that could mean the businesses could face a labor shortage and need to offer higher wages to attract workers. This adds up to increased demand for gold as investors search for proven strategies to lock in their purchasing power, while growing their wealth.

If you’ve been waiting to buy gold…

This year has been an extraordinary year for gold and with inflation yet to be vanquished, today’s dip in gold prices offers long-term investors a short-term opportunity to accumulate and add to their wealth protection at lower prices. If you’ve been waiting to buy gold, don’t wait too long – these lower prices won’t last.

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