Speculation over what the Federal Reserve will do to interest rates and when those changes will happen has been all over the news and social media for months. The gold market is especially watched when this topic comes into play.
The gold market has performed well so far this year, but its long-term value is still up in the air. Many investors and market players are attempting to plan the timeline of when to buy, when to sell and the value of holding on to the yellow metal.
Interest Rates, Dollar Strength and Gold Prices
As interest rates rise and the dollar strengthens compared to other currencies, gold values will fall. The benefit of holding the safe haven investment is diminished and investors will choose yield-bearing investments instead. The trick is knowing the right time to move from gold to other investments in order to reap the greatest benefit.
Interest rates, dollar strength and gold prices will remain unclear for the mid- to long-term as the market continues to wait for announcements and implementation of key economic policies from the White House and Congress.
Monetary and Fiscal Policy Decisions
President Trump addressed Congress yesterday, giving broad statements on a number of policies. Despite the speech, no new details on actual changes or policy implementations were given with respect to trade and other market-impacting fiscal policies. Very little detail was provided on topics such a tax reform, leaving investors with continued uncertainty about the future.
The President did have a more congenial stance on compromise in a general sense, which could lessen the perceived need for a safe haven asset like gold. Those effects could be seen in the coming weeks.
With the lack of new information from the White House, many are turning their attention to Federal Reserve Chair Janet Yellen for expectations regarding monetary policy. Recent remarks from Fed officials have pushed the dollar up, effectively devaluing gold. William Dudley, New York Fed President, stated that the case for tightening policy was becoming “a lot more compelling.”
This has given investors the indication that the presumed March rate hikes are more certain, with Reuters publishing a 68 percent chance of rate hikes actually occurring in March of this year.
