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After months of anticipation, the Federal Reserve dropped one of the single largest rate cuts in history. This decisive action officially kickstarts a period of quantitative easing, which could harm the dollar’s strength as investors seek more secure assets.

In this week’s The Gold Spot, Scottsdale Bullion & Coin Precious Metals Advisors Joe Elkjer and Damian White explore the impact of this Fed rate cut, what it says about the economic climate, and why gold is the place to be.

The Backdrop

To fully grasp the Fed’s rate cuts, it’s essential to understand why interest rates soared initially. After years of unchecked spending and relentless money printing, the government initiated one of the most aggressive rate hikes in history. The aim was to tackle surging inflation fueled by budget overruns and geopolitical challenges.

The inevitable correction will be equally aggressive. The Fed will need to “undo” much of what it has implemented, but investors have already adjusted their portfolios and financial outlooks in response. This abrupt 180-degree monetary policy shift will likely cause significant disruption and market upheavals.

Fed Makes Massive Rate Cut

In the lead-up to the Fed’s highly anticipated September meeting, most experts were projecting a 25-basis point cut. However, last-minute inflation data indicating a slowing economy spurred the Fed to opt for a large 50-basis point rate cut. Furthermore, policymakers are already expecting another half-point cut before the end of the year.

Usually, such large basis-point adjustments occur as an economy teeters on the edge of recession. However, the US is currently witnessing stock market highs, a record-breaking gold rally, and a strong job market. This seemingly premature shift in policy has led many to view it as an implicit admission that the economy might be weaker than the Fed anticipated.

“The Fed…is acknowledging that they’re behind the curve, that they’ve waited too long, that they’re worried about the economy.” – Sr. Precious Metals Advisor Damian White

Weaker U.S. Dollar & Stronger Gold

Rate cuts typically weaken the U.S. dollar because lower interest rates make dollar-backed assets less attractive to investors. As returns on these assets decline, investors often shift their focus to safer havens. This shift drives up demand for tangible assets like gold, which are prized for their relative price stability and ability to keep pace with inflation. As a result, gold becomes more appealing during periods of monetary easing, providing a hedge against the dollar’s devaluation.

“We’re going into a rate-cutting cycle which is going to weaken our currency [but] be a tailwind for the prices of gold.” – Sr. Precious Metals Advisor Damian White

Yield Curve Inversion Signals Trouble Ahead

Another warning sign of potential economic trouble is the yield curve inversion, where short-term rates surpass long-term rates.

While yield curve inversions occur occasionally, the concern now is that we’ve been in this inverted state for 24 months. This prolonged inversion could strongly indicate a significant economic downturn on the horizon.

“The 1929 Great Depression market crash is the only other time when the yield curve has been inverted this long.” – Sr. Precious Metals Advisor Damian White

The Fed is still calling for a “soft landing” but economic indicators, such as the yield curve inversion, suggest otherwise. This could be forecasting severe trouble for the stock markets, real estate market, and job market.

Gold Trading at Record Levels

Gold prices have been on a tear throughout 2024, consistently breaking new records. Shortly after the Fed announced a 50-basis point rate cut, the yellow metal pierced the $2,600/oz mark before settling slightly lower on the day. On Friday, September 20, 2024, gold spot prices continued to push higher, comfortably jumping past $2,600 an ounce again. Despite gold trading at all-time highs, experts are raising their price predictions in anticipation of greater price strength.

“Anyone ever in the history of planet Earth who has ever bought gold is now in profit.” – Sr. Precious Metals Advisor Damian White

Related video: Gold Price Surge: The Perfect Recipe for Hitting $5,000/oz

Don’t Wait to Buy Gold. Buy Gold and Wait.

Gold might be at all-time highs, but the economic and geopolitical stars are aligning to push gold and silver prices even higher. Central banks are binging on gold at record rates, domestic politics continues to destabilize, the dollar is getting weaker by the day, and worldwide conflicts rage.

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