Do you ever stop to think about what inflation actually is? Because of inflation, prices are going up, which implies that the same amount of fiat money will get you less goods and services. A moderate level (about 2%) of inflation is beneficial to the economy; but, high levels of inflation, deflation, or volatility are very unhealthy to economy and created a tremendous deal of uncertainty. The Fed is dedicated to ensuring price stability. They do not have any direct control on inflation, but they do have tools at their disposal to exert indirect control over inflation. Interest rate or more precisely the Fed fund rate is the primary tool that the Fed has at its disposal.
By reducing interest rates, the Fed intends to stimulate the economy and bring about an increase in inflation. When the interest rate is low, it is cheaper to borrow money because the amount of interest that you have to pay is also lower. This makes it simpler for individuals and businesses to take out loans and spend their money. Demand rises to meet higher levels of aggregate spending. Prices will go up in response to an increase in demand.
By raising interest rates, the Fed intends to accomplish two goals at once: slow down the economy and bring inflation down to more manageable levels. When interest rates are increased, borrowing money becomes less appealing as an option. This guarantees that individuals and businesses will spend less money, and as a result, demand will decline. Price will go down, which will have the effect of bringing inflation down. Ray Dalio's video explaining inflation is the best economics 101 video ever made, and everyone interested should watch it.
Gold/silver prices and interest rates almost always move in opposite directions. It would appear that the prices of precious metals perform significantly worse than the stock market or cryptocurrencies when the interest rate starts to lower. But, once the interest rate hike has taken place, the prices of precious metals perform far better than, say, Cardano.
I’m sorry, Cardano fans.
I know that silver and gold are still going down, but compared to some altcoins that are down 90% (or even 99%) from their all-time high, precious metals are just the better investments and hedges. People fear the bear market because nothing will come out of it unscratched; everything will go down against the dollar. For a trader, the important question to ask during the bear market is “Am I long dollar or short dollar?”. For the long term investors, the best strategy is to keep buying the dip, as timing the market is a very tricky thing to do. Keep buying the dip of strong commodities like silver and gold with disposable income, which is not FA of course.
