The price of gold finally hit its peak earlier this week and the market saw a gradual downturn today. Policies from the incoming U.S. president are still largely uncertain but investors can be quite sure of Federal Reserve Chairperson Janet Yellen’s plan for the future. Yellen voiced her view that interest rates should rise slightly, leading the dollar to gain strength.
As markets reacted to Yellen’s continued support of rate increases, the dollar index rose about 0.3 percent, bouncing back from its decline in previous days. The dollar strengthened, leading gold spot prices to decline 0.1 percent and gold futures hit a low of $1,197.10. This decline in spot prices comes on the tail of an eight-week high of $1,197.31 on Tuesday of this week.
“Now, many of you would love to know exactly when the next rate increase is coming and how high rates will rise. The simple truth is, I can’t tell you because it will depend on how the economy actually evolves over coming months.”
Although the exact rate increase was not confirmed, Yellen did mention that inflation needs to reach about 2 percent and the U.S. economy is not quite there yet. This means that we can expect modest rate hikes at least in 2017. As interest rates rise, the price of gold will likely fall because investors will turn to yield-bearing stocks in order to reap the returns that safe haven investments like gold cannot offer.
Where Is Fiscal Policy Headed?
Of course, this all depends on the fiscal policy coming from the White House. The Fed’s monetary policy, including interest rate changes, is contingent on what other economic changes are in play. The decision to raise rates and indirectly decrease the value of gold will not be determined by day-to-day swings up and down. Rather, they will look at longer term trends based on real market data, not just emotional shocks to the market.
Different gold market analysts will provide varying suggestions and forecasts for gold investing. Whether you are bullish or bearish on gold, we can all agree that no one can know what the long-term trend for gold will be. The market will continue to hold relatively steady until the new political administration makes substantial announcements and takes action. The presidential inauguration is set for tomorrow, so announcements on fiscal policy and trade could be made as early as Monday, Jan. 23, 2017.
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