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17 Apr 2015
How will a Fed hike impact Gold? – Sunshine Profits
FXStreet (Barcelona) - Arkadiusz Sieroń of Sunshine Profits, shares the probable impact on Gold prices from a Fed rate hike, explaining that the Fed’s hike alone won’t negatively affect Gold prices.
Key Quotes
“As we have pointed out in an earlier edition of the Market Overview, the Fed’s hike alone would not negatively affect gold prices. The real interest rates or U.S. dollar index are much more important for the gold market than single changes in the federal funds rate. According to Barclays analysts, apart from the “hiking cycle of 2004-06, gold prices tend to fall 2% in the three months leading up to the rate hike,” but everything depends on the economic context.”
“Indeed, with ultra-low yields on European and Japanese bonds, investors should shift their capital to the U.S. bond market. A possible demand for U.S. Treasuries would keep long-term interest rates low, which would support the gold prices.”
“In other words, if the Fed's tightening is gradual and correctly anticipated, and interest rates remain low by historical standards, the impact on gold should not be huge. This is exactly what the economists are expecting right now. The first move will be rather small, probably a quarter of a point, and it will be carefully signaled to the market to prevent any surprise.”
“However, the strong U.S. greenback seems to be a headwind for the yellow metal, at least in the coming months before the Fed’s hike.”
Key Quotes
“As we have pointed out in an earlier edition of the Market Overview, the Fed’s hike alone would not negatively affect gold prices. The real interest rates or U.S. dollar index are much more important for the gold market than single changes in the federal funds rate. According to Barclays analysts, apart from the “hiking cycle of 2004-06, gold prices tend to fall 2% in the three months leading up to the rate hike,” but everything depends on the economic context.”
“Indeed, with ultra-low yields on European and Japanese bonds, investors should shift their capital to the U.S. bond market. A possible demand for U.S. Treasuries would keep long-term interest rates low, which would support the gold prices.”
“In other words, if the Fed's tightening is gradual and correctly anticipated, and interest rates remain low by historical standards, the impact on gold should not be huge. This is exactly what the economists are expecting right now. The first move will be rather small, probably a quarter of a point, and it will be carefully signaled to the market to prevent any surprise.”
“However, the strong U.S. greenback seems to be a headwind for the yellow metal, at least in the coming months before the Fed’s hike.”