Gold is celebrating the surprising 0.50% interest rate cut that has just been announced by the Federal Reserve. The Fed is obviously trying to act early to battle any potential slowdown of the economy. This decision could be seen as extremely positive for gold. First, traders are now even more confident that interest rates will remain low or very low for a long time. Secondly, investors might think that the Fed is fearing a negative turn.
After sticking to previous rates in the last few months, the Fed has gone ahead with a sudden 0.50% cut all in one go. This shows that the Fed is seriously worried about the impact that the coronavirus might have on the economy.
Last but not least, this rate cut might not necessarily help stocks in the medium term and any further correction on the equity market could provide a further boost to bullion.
Despite all this, we should still keep in mind that there are some risk elements for gold too, including a potential weakening of demand for gold for jewellery making and from the industrial sector.
