The Fed Didn’t Cut Rates - Is Gold a Good Buy Now?

Gold is usually an obvious choice during high interest rates, but the recent Fed meeting makes the decision a little harder.
Updated July 18, 2024
Fact checked

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

The Federal Reserve opted not to cut rates right now, creating ripples in the financial markets. Weary consumers and investors awaiting relief in interest rates will need to wait a while longer as the strain on personal finances might continue. 

Many are also questioning whether now is a good time to purchase gold, which is typically a safe haven investment during times of financial difficulty.

If you’re over 50, take advantage of massive discounts and financial resources

Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.

How to become a member today:

  • Go here, select your free gift, and click “Join Today”
  • Create your account (important!) by answering a few simple questions
  • Start enjoying your discounts and perks!

Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.

Become an AARP member now

Behind the Fed's decision

The Federal Reserve's decision to maintain current interest rates came with nuances that impacted various financial markets. Gold, in particular, stood its ground despite a stronger dollar. The Fed's announcement included a likely dismissal of rate cuts in the spring, which led to a 0.4% increase in the dollar's value. However, this made gold less appealing to overseas buyers.

Markets did not react well to the Fed’s decision. News of delayed rate cuts pushed the S&P 500 index to close at daily lows, down 1.6%, marking the worst session since September 20, 2023. The tech-heavy Nasdaq 100 also declined, closing down 1.94% with its worst day since October of last year.

Despite these shifts, investors still remain hopeful for rate cuts later this year.

Rates likely to decrease later this year

While the Fed's decision was to hold rates steady, there's a prevailing expectation of rate adjustments later in the year. The CME FedWatch Tool suggests a substantial 92% chance of a rate cut in May.

The hawkish stance taken by Federal Reserve Chair Jerome Powell indicates a reluctance to consider trimming rates too soon, citing ongoing inflation concerns. However, the market seems to anticipate rate adjustments by May, with Goldman Sachs even forecasting a total of five rate cuts in 2024.

Why people buy gold when rates fall

Amid the intricacies of interest rates and market dynamics, an interesting phenomenon emerges when interest rates make moves — people tend to turn to gold when rates fall.

This inverse correlation is rooted in the principle that lower interest rates make investments like stocks and bonds more appealing. In contrast, gold, traditionally considered a safe-haven asset, becomes more attractive as the opportunity cost of holding it decreases. 

While historical returns suggest this relationship, it's crucial to note that past performance doesn't guarantee future results.

Historical returns and correlation

Historically, gold has exhibited a negative correlation with interest rates. When rates go down, gold prices tend to go up, and vice versa. This pattern arises from the shift in investor preferences when alternative assets become more or less appealing. 

For instance, as interest rates rise, the opportunity cost of holding non-interest-bearing gold increases, leading to a potential decrease in demand and prices. Conversely, when rates fall, gold becomes more attractive, sparking higher demand and potentially boosting prices.

Should you buy gold now?

Gold is a great way to diversify any investment portfolio, and is considered a safe haven investment during times of political strife, war, or economic turmoil. It’s important to remember that gold is not an income-producing asset like some other assets such as bonds, stocks, or ETFs might be if they pay a dividend. The only profit to be realized on gold happens when it is sold, so investors need to be wary of this opportunity cost if they choose to hold it in their portfolios.

Gold has been a fairly bulletproof investment since 2022 amid political conflicts throughout the world and high interest rates. The investment now becomes more complicated with the Fed clearly holding rates tight until at least late spring, but with markets highly convinced that rates will fall by at least June. 

This means if you’re interested in purchasing gold now, it will be crucial that you are aware of the impending price movements as there is a lot of anticipated change in the next 5 months.

Bottom line

The Fed's decision not to cut rates has set the stage for intricate market dynamics. As the year progresses, the anticipation of rate cuts and their potential impact on various assets, including gold, adds an element of uncertainty. Investors should closely monitor the evolving economic landscape, considering factors like inflation, employment data, and global developments. 

While historical patterns suggest a relationship between gold and interest rates, it's essential to approach such correlations with caution, acknowledging that market conditions can vary. As you navigate these financial waters, staying informed and adapting to changing scenarios will be key to making informed decisions and your ultimate best shot at building wealth.

Choice Home Warranty Benefits

  • First month free
  • Protection for unexpected expense
  • 24/7 claims hotline
  • Network of over 15,000 technicians

Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.