Buffalo, NY (WBEN) - As gold prices surge to record highs and silver prices also rise, one expert says the Federal Reserve's interest rate decision was no surprise to those in the gold market.
Scott Hunt of Jack Hunt Gold and Silver says the rate was expected. "I believe that the market was already anticipating that fed cut and as a result, it's already been factored in. So, we have not seen any dramatic move in the market as a direct result of that news," says Hunt. He adds that accounts for the most part why the price has risen as it has so precipitously over the last 18 months.
Historically, Hunt says there's a stimulus to buy gold with lower interest rates, because gold doesn't offer a return for something like a stock or a bond. "It lowers the opportunity cost of investing elsewhere. If interest rates are down, you might be more inclined to buy gold than treasuries, and I also believe that a lowering of interest rates, you're trying to stimulate the economy in one way or another, which stimulation also often results in inflation and hedges having an asset against inflation," he explains.
As for the recent rise in silver prices, Hunt says the silver market is catching up to gold. "It's always been a distant second, and we saw, again, a precipitous rise in the gold price in the last 18 to 24 months. I believe Silver has only responded in kind since August," says Hunt. "So I think there's a lot of catch up here as part of it, and there is, if you look at just simple supply and demand, there is more industrial demand for silver now than being mined, and that's of course, going to drive the price up."
Hunt believes there is a new era in economics talking about gold and silver now being the riskless asset. "I never imagined in my career that I would hear that statement being made over US Treasury bills. So I guess what it is is I'm really beginning to wonder if there's a pivot in the market here that this is all an overall sign of lack of confidence in the future of our economy from sources that might have a good long term view of the situation," says Hunt. "I've said all the time, if our government and other Western governments continue to spend money that they don't have, problems start to happen, and that can happen at a sovereign level as well." He cites a number of Western governments doing just that.
While suggesting talking to a financial adviser, Hunt suggests gold and silver should be a small part of your portfolio, as a hedge against other investments heading south. "People in 2008 who had 10% of their investable assets in gold and silver did far better than the individuals who had all their money in the market, and they recovered much quicker with that portion of their portfolio," says Hunt.