Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Holds on to Gains Despite Rollercoaster Ride on Rate Hike Rumors

Commodities / Gold and Silver 2016 Mar 22, 2016 - 12:53 PM GMT

By: Nicholas_Kitonyi

Commodities

Gold has an interesting relationship with the U.S Federal Reserve – we all know the Fed has huge gold reserves. However, the relationship between the Fed and gold extends beyond the huge stockpiles of gold that the Fed hoards. The fed often wields the power to determine the trading price of gold and you can record massive gains or huge losses on your gold investments depending on what the fed does at any point.


When the fed sneezes gold catches a cold and smart investors know the importance of paying attention to the Fed's economic policy. Last week, Federal Reserve policymakers embarked on a two-day meeting that started on Tuesday. Rumors flitted out that the Fed might decide to raise interest rates after the policy meeting and that was enough to precipitate a selloff in gold.

It is a well known fact that many investors seek stability in gold as a refuge in uncertain economic times. However, many of these investors tend to run out of their gold investments as soon as they perceive that the economic policy might favor interest-yielding assets. Hence, it wasn't surprising that the yellow metal recorded a fear-induced selloff earlier last week on Monday and Tuesday.

Rumors of a rate hike triggered selloff in gold

Many people had expected the Fed to raise interest rates (or last least give an indication that it would raise interest rates) after its policy meeting that ended on Wednesday. Many investors started to sell their positions in gold in order to take profits off the table and the outflow of funds in gold miners ETFs stood at $470.4M in the first two weeks of March to erase the inflows of $159M that was recorded in the ETF in January and February.

On Tuesday, Macquarie analyst Matthew Turner opined that “one difference from a few weeks ago is that the surprise (from the Fed) would be a rate hike, whereas perhaps a few weeks ago people thought a surprise would be a rate cut. There has been a shift towards hawkishness again, which is probably pressuring gold a little bit.” An Oppenheimer analyst, Ari Wald explicitly said, "it's time to take profits in gold".
However, some gold bulls were unshaken in their belief in the fundamentals that support an uptrend in gold. Analysts at UBS noted that they "expect the downside to be ultimately contained amid signs that longs have more endurance and indications of lurking interest to buy dips.” More so, analysts at Global Intergold noted that "gold remains constant in a way that few, if any commodities can compare. It is a unique product that does not lose long-term value."

Fed defy expectations to give gold a boost

However, the fed moved in contrast to expectations by preaching caution in a statement that indicated that the Fed doesn’t want to spook the markets. Fed Chairwoman Janet Yellen noted that “caution is appropriate” because “information received since the Federal Open Market Committee met in January suggests economic activity has been expanding at a moderate pace despite global economic and financial developments in recent months.”

The fed went ahead to reduce the expected rate hike from four quarter-point increases this year to two quarter-point increases by the end of the year. 

Gold prices immediately recovered from the slumber after it became obvious that the Fed wasn't going to raise interest rates any time soon. On Thursday, gold spot gold was up 0.3% to $1,266.01 an ounce, gold for April delivery climbed by 2.9% to $1,266.30 per troy ounce and the May contract gained a massive 4.2%. 

Gold recovered some of the losses it recorded earlier last week and the yellow metal is on track to end this week with gains. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, saw a 1.50% increase in its holdings from 795.20 tons on Wednesday to 807.09 tons on Thursday. Mitsubishi Corp analyst Jonathan Butler confirms the bullish outlook for the bullion by saying, "with the dovish overall macro outlook - the Fed's more dovish stance and ECB and Bank of Japan also pursuing very aggressive stimulus policies - affecting the strength of the dollar and U.S. Treasury yields, gold should benefit."

By Nicholas Kitonyi

Copyright © 2015 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in