The Fed has cut interest rates by 50 basis points. Is this a buy signal for gold investors?

The Fed has cut interest rates again - is this a renewed buy signal for gold investors?

For the first time in over a year, the U.S. Federal Reserve has moved to ease borrowing costs, reducing its benchmark rate by 50 basis points. The federal funds rate now stands in the 4.25%–4.5% range, a notable shift in policy that underscores the challenges facing the U.S. economy.

Yet, what makes this cut different from past cycles is not just the Fed’s move itself, but the political and economic pressure surrounding it. The central bank is under growing scrutiny from Washington to act more aggressively before the 2026 election cycle, with some policymakers openly calling for deeper cuts to support growth. Whether the Fed caves to that pressure before the end of 2025 is now one of the most pressing questions for investors.

A year ago: $2,700 gold and a $3,000 forecast

When the Fed last cut rates in September 2024, gold quickly spiked to an all-time high of $2,700 per ounce. Analysts then were forecasting a push toward $3,000 in early 2025.

Fast-forward 12 months, and the outlook has changed dramatically. Gold has not only surpassed $3,000 but has broken through the $4,000 mark, up more than 53% year-on-year. Analysts now suggest the rally is far from over: Goldman Sachs expects gold to reach $4,900/oz by December 2026, citing persistent safe-haven demand.

Why the Fed cut matters for gold

As always, the relationship between interest rates and gold remains crucial. Lower rates tend to boost gold for four reasons:

• Lower opportunity cost: With bond yields and savings rates reduced, the appeal of holding non-yielding assets like gold increases.
• Weaker U.S. dollar risk: Rate cuts often pressure the dollar, making gold cheaper abroad and fuelling demand.
• Inflation hedge: Cheaper borrowing can revive inflationary pressures, pushing investors toward gold’s traditional safe-haven role.
• Signal of instability: A rate cut signals concern about growth, labour markets, or financial stability — all conditions that drive capital toward gold.
  
  

What’s different this time?

Gold’s latest rally isn’t just about interest rates. A combination of erratic U.S. policies and rising global risks is amplifying demand:

• Tariff turbulence: Ongoing U.S. trade tariffs and uncertainty about whether they will remain or be rolled back have shaken investor confidence.
• Government dysfunction: The recent government shutdown has underscored political gridlock in Washington, raising questions about fiscal stability.
• Political discourse: Sharp partisan divides and policy unpredictability are adding to perceptions of risk.
• DOGE tailwinds: The Deficit Offset & Growth Expenditure (DOGE) cuts have created fiscal distortions that investors fear could stoke future inflation.

Taken together, these forces mean gold is not just benefiting from lower rates — it is increasingly seen as an insurance policy against political and economic volatility.

Central banks and investors keep buying

Another crucial factor behind the rally is continued central bank buying. Global reserves managers, led by emerging markets, are diversifying away from the U.S. dollar and into gold, keeping demand elevated. Retail investors have followed suit, adding further momentum.

Looking ahead: Further cuts or not?

The biggest question now is whether the Fed will bow to political pressure and cut rates again before the end of 2025. While the central bank insists it remains data-dependent, markets are already pricing in the possibility of another 25–50 basis point reduction.

If that happens, gold’s momentum could accelerate even further — especially if coupled with ongoing global uncertainty.

Is gold still a buy?

With prices already at record levels, some investors may hesitate to enter now. But history shows that sustained rallies in gold often build over years, not months. With forecasts as high as $4,900 by late 2026, strong central bank buying, and no sign of easing geopolitical tension, the case for gold as a long-term diversifier remains powerful.

For investors looking to shield their portfolios from inflation, dollar weakness, and political risk, the Fed’s latest rate cut may be less of a warning and more of an invitation: gold remains a safe haven in an unpredictable world.