WILL US FED RATE CUT IMPACT INVESTMENT AND GOLD PRICES IN INDIA? ALL YOU NEED TO KNOW

As global investors closely monitor the results of the US Federal Reserve's two-day policy meeting, market analysts anticipate a period of increased volatility. Regardless of the decision, stock markets are likely to react strongly to any changes in US interest rates

The Federal Reserve is anticipated to declare an interest rate cut for the first time in four years at 11:30 pm IST on Wednesday. 

The US plays a dominant role in global markets due to its position as a major creditor, supporting other economies through loans and contributions to international financial institutions like the World Bank and the IMF.

How US Fed Rate Cut Could Influence Investment Trends In India

When US interest rates rise, foreign institutional investors (FIIs) are less inclined to invest in India due to higher opportunity costs. A Fed rate increase could make investing in India less appealing, prompting some investors to withdraw their funds and reinvest in the US. Additionally, if the Fed raises rates, the Reserve Bank of India (RBI) might need to follow suit to curb the outflow of funds from FIIs and protect the rupee.

An increase in interest rates can strengthen the dollar's dominance, making imports less expensive but raising the cost of exports for international buyers. Since many commodities are priced in US dollars, changes in the Fed's policies that affect the dollar's value can also influence commodity prices. 

A rate cut, leading to a weaker dollar, can make commodities cheaper in other currencies, potentially boosting demand and prices. This can have significant effects on countries that are major exporters or importers of these commodities.

How Fed Rate Cut Could Affect Gold Prices In India

With anticipation mounting over a potential Fed rate cut, gold prices are approaching historic highs this Wednesday. The prospect of a weaker dollar, prompted by anticipated rate cuts, has increased demand for gold, which is seen as a safe-haven asset during times of currency devaluation and economic uncertainty.

In India, spot gold prices have climbed more than 16 per cent this year. Globally, gold prices have risen over 24 per cent due to expectations of rate cuts, central bank purchases, uncertainties surrounding US elections, escalating geopolitical tensions, and investments via exchange-traded funds (ETFs).

Gold is typically considered a favourable investment when interest rates are lower and serves as a hedge against inflation.