What the Fed’s Decision Means for Gold & Silver in 2025

The Federal Open Market Committee (FOMC) meets eight times a year to discuss monetary policy, the most recent meeting being September 17-18, 2024.

The FOMC is a branch within the Federal Reserve System that makes important decisions about interest rates. In particular, the FOMC votes at its meetings on whether to maintain, raise, or lower the interest rate that banks lend and borrow excess reserves overnight.

These decisions can significantly affect the economy and markets, including the market for precious metals such as gold and silver.

At the Fed meeting in September 2024, the committee voted to lower the fed funds rate for the first time since 2020. How will these policy changes affect gold and silver?

What Is the Federal Open Market Committee (FOMC) Meeting?

The Federal Open Market Committee meeting is one of eight regularly scheduled meetings held by the Federal Reserve’s monetary policy-setting committee throughout the year. The FOMC sometimes holds additional meetings in case of an economic situation that would necessitate an emergency rate cut, for example.

There are 12 members on the FOMC. They include the president of the Federal Reserve Bank of New York, the seven members of the Federal Reserve’s Board of Governors, and four of the other 11 Reserve Bank presidents. These presidents take turns sitting on the committee on an annual basis.

At each Fed meeting, the members discuss current economic financial conditions — including studying data about inflation and employment — and determine the best course of action to take regarding monetary policy.

For example, if inflation were on the rise, the FOMC might decide to increase the target fed funds rate. This makes borrowing money more expensive, which in turn discourages spending and relieves the inflationary pressure on prices.

On the other hand, if economic activity shows signs of slowing, the FOMC may vote to lower the fed funds rate, making borrowing cheaper and encouraging economic activity.

The Current Financial Landscape

Currently, the financial landscape is looking more like the latter scenario above.

Once the COVID-19 pandemic recovery began in earnest, the FOMC hiked the fed funds rate 11 times in an effort to battle persistent inflation. The committee’s decisions took the benchmark rate from a range of 0.00% to 0.25% (which had been set at an emergency meeting in March 2020) to a range of 5.25% to 5.50% by July 2023.

This unusually aggressive strategy brought inflation closer to the Fed’s 2% year-over-year target, but it also threatened to plunge the economy into recession. From August 2022 to August 2024, the U.S. unemployment rate rose from 3.7% to 4.2%.

What Happened at the Fed Meeting in September

At the Fed meeting held September 17-18, 2024, the committee decided to lower the fed funds rate by half a percentage point, to between 4.75% and 5.00%. This was the first time in more than four years that the FOMC lowered the rate.

It was also the first time since 2005 that the FOMC’s decision wasn’t unanimous; Federal Reserve Governor Michelle Bowman dissented, saying she would prefer a quarter-point cut.

The Fed officials penciled in two more quarter-point cuts before 2024 draws to a close. They also projected the possibility of four more quarter-point cuts in 2025, bringing the fed funds rate to 3.5% by the end of next year.

How Will the Fed’s Decision Affect Gold and Silver in 2025?

Precious metals stand to be a beneficiary of the FOMC’s upcoming rate cuts. That’s because these rate cuts effectively lower the cost of currency, weakening the dollar. When the value of the dollar decreases or turns volatile, the prices for precious metals — which have long been considered a safe haven from the fiat currency — tend to rise.

In addition, lower rates make interest-yielding assets such as bonds less attractive. This can drive more investors to gold and silver.

We’ve already seen prices for gold and silver increase following the Fed’s September meeting. The price for U.S. gold futures reached a new all-time high above $2,622 immediately following the decision announcement. Meanwhile, the spot price — the price at which gold can be bought or sold for immediate delivery — reached a record high of $2,599.92.

Analysts at multinational bank ANZ are expecting the Fed’s potential rate-cutting actions to drive gold prices toward $2,900 by the end of 2025.

As for silver, it also notched gains following the Fed’s decision. The spot price for silver reached $31.25 per troy ounce quickly after the rate cut announcement. Analyst forecasts are calling for silver prices to reach as high as the $50s next year.

Don’t Wait for the Next Rate Cut

Now is a good time to consider an investment in gold and silver. Thanks to the expected Fed interest rate cuts in 2025, the values of the precious metals are widely forecast to increase. In addition, ongoing geopolitical tensions and economic uncertainty are also factors that could significantly drive up the prices of gold and silver.

If you want to learn more about adding these safe-haven assets to your portfolio, reach out to the CMI Gold & Silver team. We’d be happy to assist you.

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