Gold has rebounded markedly since the Federal Reserve’s decision to raise interest rates mid-month, in addition to confirming the possibility of accelerating the pace of raising, which raises a question about the logical extent of the trend of precious metal prices, according to a Bloomberg report.
– Some explain that high interest rates drive inflation to accelerate and, of course, gold is the best hedge against inflation, which explains the upside, but others deny that because precious metal does not generate returns.
– If you own all the gold in the world, you can set yourself up as a king over him, but you will ultimately be unable to reap any gains from it , said Warren Buffett
– Another reason that gold prices are likely to fall after the rate hike is that raising the interest rate basically boosts investor appetite for the nation’s currency, but the US currency specifically has a stronger bearish effect on dollar-denominated commodities.
– Once the interest rate hike was confirmed, investors stopped buying the dollar and began to turn to gold that is likely to make a profit. This behavior is evident as interest rates rise by the end of 2015 and late 2016.
– In fact, during these two occasions (sharing the long wait for the rate hike) a bullish wave was launched not only for gold but also for other precious metals in addition to mining stocks, which lasted for months on end.
Will the gains be renewed?
– The Federal Reserve has confirmed its expectations of at least two interest rates this year, in line with its previous forecast, but the tone is still cautious, giving it room for maneuver if the economy falters or inflation.
– So is there another rise for gold? Is the same scenario repeated with every increase in interest this year? It is, of course, subject to several factors. Macroeconomics or geopolitical variables may change direction altogether.
– However, the above scenario is likely to be repeated, and it is highly likely that the expected rate hike will lead to more sharp fluctuations in the gold and currency markets.
– But the problem with gold in many of the recent bullish waves is the resistance to a dense, and whenever the shiny yellow metal is ready to start, has lost momentum.
– Of course, investors are concerned about gold, especially when its price is much higher than the cost of marginal production.
Alternatives and pressures
– US stocks have been performing in recent times (apart from the last few sessions), along with promising investment opportunities in emerging markets, as well as the influx of some of those who do not trust the currency systems of KFH.
– Gold is a bit like the Hollywood stars who enter the spotlight and fame for some time and sometimes wait for the new tournament to come.
– With the rare news of the gold market, and with some events attracting investors’ attention, such as Trump’s tweets, Russian moves and European populism, the yellow metal is not the news.
– It may be wise to follow the Fed’s cat-and-mouse game of interest, to deal quickly with the way gold enters and exits. Once a sell-off is triggered, investors will wait for prices to fall and then start again.