The decision of the US Fed to cut key interest rate by 50 basis points or half a percentage point can have different impacts in different markets. While it could favourably impact the equity markets, what will happen to the gold market in India remains to be seen.
According to reports, the rate cut decision by the Federal Reserve, the first such decision in 4 years, has already boosted gold prices in the West, sending spot prices of the metal up by 0.9% to hit $2,592.39 per ounce. Gold futures went up 0.2%.
Can boost gold prices further
“Gold prices have remained elevated in India over the past several months. A rate cut by 25 or 50 points is expected to push prices in India further,” Joydeep Sircar, director, B Sircar Johuree, a century-old jeweller in Kolkata, told News9live on Wednesday.
However, a rise in gold prices could impact demand of jewellery in India, especially with the festive season set to begin in October. The busy marriage season is also due in December-January.
Higher interest rates have traditionally been viewed as a dampener of the prices of gold, the safest hedge against inflation. Higher rates also make income from fixed-income instruments more attractive.
Uncertainties in the US around the Presidential election in early November could also affect the gold prices, Sircar had said, indicating it might be a catalyst for raising prices.
Dollar and crude
Reports have already indicated that the Fed rate decision have negatively impacted the dollar. Following the announcement of the cut, the US dollar fell 0.5%. This is reportedly its lowest level since July 2023 against rival currencies.
Crude prices might go up following the rate cut. The logic is simple: any rate cut would reduce the cost of borrowing, increase consumption levels and, therefore, increase demand for petroleum products in the country.
Did you know?
Did you know what the lowest interest rate in US economic history was? Between December 2008 and December 2015, the Fed rate hovered between 0.00% and 0.25%. The historic high rates, on the other hand, were seen in December 1980, when rates were raised to 20% in response to inflation that rose to 14.6%.
Gold prices are already at the highest levels in India and it remains to be seen whether the Fed decision can push it up further. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
