A 50 basis point rate reduction

Gold Spot Price $AU3806

Silver Spot Price $AU45.53

Platinum Spot Price $AU1467

It’s a scenario we could well be facing from the FED in its next announcement. Any while a 0.5% reduction in the cash rate may be exciting for many mortgage holders, investors should feel a little different. For such an aggressive rate cut, the FED may well be trying to mitigate an economic plunge into recession. 

And there is a good chance this could occur. After selling the ‘higher rates for longer’ message for the last period, with retail suffering horrifically, and mortgage holders barely holding on - we’re about to see a complete turn-around in the way we see money move. I hope everyone out there is ready for the monetary easing cycle to begin.

And while many think that shares, the housing market and other investments will simply jump in value once the rate cuts begin, it is generally much more complicated than that.

Firstly, rate cuts suggest that something is wrong. They suggest that the economy needs stimulation. And if a big rate cut is released, it suggests that something is really wrong. Small time investors in share markets are likely to jump on the upcoming rate cut as opportunistic. Whereas institutional investors are now releasing reports that indicate that sharemarkets growth into the next 10 years will be low to moderate at best.

We’d argue that as rate cuts are initially released there’ll be a flurry of purchasing which will ultimately over-value the market which could well cause the next sharemarket correction. We’ll then follow the share market down to a healthy point of valuation - which could well coincide with rates being quite low as well. At the slightest hint of tightening monetary policy again, we’ll start to see sharemarkets and property markets re-start their incline.

Meanwhile Gold and Silver are still looking solid. And if we do start to see the share market volatility we’re predicting, both precious metals will continue to provide the investor safe haven they are built for. 

Enjoy today’s charts.

Gold daily chart, with 200MDA

Silver daily chart, with 200MDA

US500, with 200MDA

ASX200, with 200MDA