Tags: Money | Federal Reserve | gold

How Does the Fed Affect Gold?

By    |   Wednesday, 01 July 2015 11:11 PM

Gold prices went up nearly 2 percent upon news in March from the Federal Open Market Committee that the Federal Reserve would not raise interest rates just yet, Forbes reported.

Showing the power of the Fed to deeply affect commodities, the rise in gold prices marked the highest spike in two months, Forbes added, with its columnist Frank Holmes calling it "a prime example of gold’s fear trade, which occurs when investors buy gold out of fear of war or concern over changes in government policy."

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Gold's volatility in the market is well-known. It hit a historic high in September 2011 at $1,921 per ounce and was at $1,185 per ounce on May 26.

When the Fed finally decides to increase interest rates as expected, perhaps as soon as September, gold will likely dip, Gold Investing News said.

The website said that 2015's third quarter is expected to be gold's weakest upon word that September may be the target date as the U.S. economy tracts on a tepid but ongoing recovery path.

The Bullion Desk, a gold news and research website, cited gold futures' three-month rally amid news that the Federal Reserve would wait a bit before moving on interest rate hikes.

Writing in the precious metals publication Kitco News last October, Kira Brecht tied the Fed's effect on gold to currency values.

"In general, low interest rates are bearish for a currency, or in this case the U.S. dollar. When currency traders compare 'rate differentials' between currencies, generally those with a higher interest rate are seen as more attractive," Brecht wrote. "Thus, one key way in which Federal Reserve policies impacted gold over the past five years is the massive pressure it kept on the U.S. dollar. Gold, of course, is priced in U.S. dollars and a weaker dollar tends to be bullish for commodities."

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Gold prices went up nearly 2 percent upon news in March from the Federal Open Market Committee that the Federal Reserve would not raise interest rates just yet, Forbes reported.
Federal Reserve, gold
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2015-11-01
Wednesday, 01 July 2015 11:11 PM
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