Gold hit its low this summer—mid-July and into August. Here at Provident Metals, we – along with retailers nationwide – can attest to the increase in sales as investors and collectors leapt at the chance to purchase precious metals hitting 5-year lows.
These low prices primarily occurred because traders feared a federal funds rate increase this September. In preparation for the hike, traders began selling gold and that caused prices to drop. Good news for investors interested in adding gold to their precious metals portfolio!
According to CNBC, the federal funds rate is not likely to be increased in September, contrary to what was assumed during the summer. But for buyers interested in purchasing gold, understanding the relationship between precious metals and the federal funds rate may help investors get prepared for lower priced gold in the near future.
Gold and the Federal Funds Rate
The federal funds rate, or “the interest rate,” has been low since 2009. The U.S. Federal Reserve did this intentionally to stimulate economic growth. During this time gold owners saw great increases in the value of their metal.
However, now that talks of increasing the federal funds rate are back on the table, traders are becoming more interested in buying bonds rather than holding on to precious metals. This is because precious metals earn no interest whereas bonds have the potential to earn interest, causing direct investors to sell gold and invest elsewhere. This summer’s volatility in the gold market was in part due to the threat of an increased federal funds rate.
Are Lower Prices Ahead?
Observing the federal funds rate and its potential hike may indicate lower gold prices, like the ones seen in July and early August. However, buying gold at lower prices does not guarantee that gold values will increase anytime soon. For most investors, buying gold bullion and other precious metals is a long-term investment and a way to preserve wealth.
Provident Metals closely monitors spot prices of gold so that buyers can be well informed about precious metals markets before they purchase gold bullion or coins. For more news and information on gold investing and other precious metals be sure to visit our blog and knowledge center.
