Markets React Sharply to Fed’s Rate Cut: What It Means for Gold

McAlvany Weekly Commentary

Remarks from the Federal Open Market Committee meeting after an expected rate cut rocked the markets, with major indexes falling across the board. Let’s take a look at where prices stand as of December 18: The price of gold dropped to $2,560, or over $100 from a week ago. However, it’s still holding above the November lows and nowhere near longer-term correction levels. The price of silver broke below $30, dropping to around $29.21. It did break below short-term support levels and to the deep 786 fibonacci level on the market push since August. The US dollar rallied sharply above $108 after the Fed announcement. The Dow Jones Industrial Average fell 2.6% or 1,123 points. The S&P 500 fell 2.9% on the news. The Nasdaq Composite declined 3.5%, its worst day since July. The Dow Transportation Index fell 2.75% on the fed funds news. It was down over 10% since its November 25 high. Powell Rattles Investors Sentiment around the Fed’s expected 0.25% rate cut was dampened by hawkish remarks from the Fed Chairman. Markets expected to see four additional rate cuts in 2025, and were surprised when Jerome Powell remarked that, “We think the economy is in a really good place.” In one instance, the Fed noted that there would be at most two more cuts. A cut in the federal funds rate does help make banks more competitive. However, it has not translated into a decline in the 10-year yield on Treasurys. Nor has it dropped the 30-year mortgage rate to stimulate the housing market. Precious metals also declined, opening up a potential buying opportunity for investors looking to add to their ounces of gold and silver. Gold to Silver Ratio Widens With the latest dip in the gold and silver prices, the silver to gold ratio now stands at 88 to one. With silver’s drop disproportionately larger compared to gold, this is a new opportunity for investors to take a position in silver. Adding more ounces of silver on a dip will potentially open up a ratio trade to shift silver ounces into gold when the ratio narrows again. Typically, when the ratio widens as much as 90 ounces of silver equal to one ounce of gold, silver will then rally. So this is a rare time to get in at a good price. Year-End Fundamentals Wrap If you want to know a little bit more about why gold reacts the way it does, sometimes predictably, sometimes unpredictably, we'll discuss it next week. We will go into a deep dive on what causes the gold price to move in the short and the long term, and all those underlying fundamentals. Call for Expert Guidance The McAlvany Precious Metals advisors have decades of experience investing in gold and other precious metals, and they can help you find the best strategy to meet your unique needs. They are happy to speak with you about your strategy for investing in gold and other precious metals. Reach us at 800-525-9556.