Gold Prices Rise as Fed Holds Interest Rates Steady

Gold interest rates are continually rising and it's all the work of the Fed

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Oct 16, 2016
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The Fed has officially decided not to raise interest rates for the moment, and the market has already responded to the news. To be sure, raising rates could help some businesses and hurt others, but the value of gold stands to benefit the most from rates remaining where they are. Gold prices have understandably begun to rise.

According to the Comex division of the New York Mercantile Exchange, gold rose 2.1 percent at $1,354 a troy ounce at the beginning of September. Since then, it has risen another 0.1% to $1,336 an ounce.

This is the highest gold has been in more than a month, and it’s the largest hike we’ve seen since June when the value of gold jumped $59 per oz., or 4.7%, after the U.K. said goodbye to the European Union. Given the slowing growth in key sectors nearly everywhere else in the U.S. economy, this is good news.

Gold’s steady price is a direct reflection of the unshifting interest rates. It also bolstered the Fed’s case for choosing not to adjust the rates in September, despite weak manufacturing data and employment numbers. Nevertheless, the Fed’s decision left many disappointed.

“When you see the ISM non-manufacturing number dropping like this, it shakes the floor on which traders are building the hopes that the Fed could increase the interest rate,” said Naeem Aslam, chief market analyst at ThinkMarkets to MarketWatch. “A few more readings like this, and you can say goodbye to interest rate hike.”

Economists are concerned about the steady rates because they say it is leading to a weaker dollar. Gold and the dollar are directly connected. When one is high, the other will plummet and vice versa.

Since the dollar is comparatively low, gold owners are happy to see rising prices as a result. This is because gold is priced in dollars, so when the U.S. currency declines, gold becomes more affordable for foreign investors.

Of course, the Fed can’t avoid raising interest rates over the longer term. A price change will come eventually, even if it’s not for several weeks. When it does, you can expect to see price resistance from the firm gold prices.

Rising rates will increase the risk of significantly lower investments in both gold and other precious metals. It will take awhile for gold to build up its standing again once it has to fight with the rising value of the dollar.

The Fed’s current decision to leave rates alone has spurred greater interest in the gold market, particularly in foreign markets. “The inaction by the Fed revived investor appetite for gold,” Australia & New Zealand Banking Group Ltd. said to Bloomberg.

“While a cut in the Fed’s outlook for rates and the weaker U.S. dollar no doubt played a part, the continued efforts by Bank of Japan to bolster economic stimulus also helped.”

There are mixed opinions about the unchanged interest rates, but investors recognize how to make the best out of almost any situation. For owners of gold, now’s the time to celebrate your past choices.