Tags: Money | gold | prices | Federal Reserve

How the Federal Reserve Affects Gold Prices

By    |   Sunday, 12 July 2015 10:51 PM

The Federal Reserve has a strong effect on gold prices. Because it sets monetary policy, including the raising and lowering of interest rates, oft-volatile gold markets react strongly.

If the dollar is strong, commodities like gold typically fall. Amid news that the U.S. housing market was improving, an economic correction indicator used to bolster interest-rate hikes, gold traded at its lowest point in May.

But when news came that interest hikes — the first since 2006 — would not occur in June, gold prices rebounded, Bloomberg Business reported.

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Gold analysts describe a rocky road between this precious metal and the Fed, Mining.com reported.

The Fed's interest in protecting the dual mandate of maximum employment and stable prices tends to run counter to the success of gold.

Gold prices rose when a new jobs report showed weaker than expected employment gains, The Wall Street Journal reported.

But analysts told the Journal that such a disappointing jobs report would have to continue for them to change their opinions that it remains a bear market for gold ahead.

“For prices to receive lasting support, we believe the U.S. economy would need to show continued weakness, prompting the Fed to loosen rather than tighten monetary policy,” Carsten Menke, a commodities research analyst at Julius Baer, told investors, according to a May 28 Journal story. “However, this is not what we expect currently and consequently we maintain a bearish view on gold.”

Another analyst, reacting to expectations that eventually this year, the Fed would increase interest rates, described the waiting game for the gold market as "like an impending dread."

"Expectations of an easing of the tightening proved wrong so far ... but the Fed is clearly ruling out next year," Macquarie analyst Matthew Turner told Reuters.

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The Federal Reserve has a strong effect on gold prices. Because it sets monetary policy, including the raising and lowering of interest rates, oft-volatile gold markets react strongly.
gold, prices, Federal Reserve
336
2015-51-12
Sunday, 12 July 2015 10:51 PM
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