The Federal Reserve, commonly called the Fed, held their first meeting of the year yesterday. Despite promises from Fed Chairman Janet Yellen that rates would go up in 2017, this first pass from the Fed resulted in no rate changes. The 2 p.m. EST announcement yesterday did not shock many investors as the market anticipated no changes to interest rates this time around. This means that gold and online trading of gold was not negatively affected as it has an inverse relationship with interest rates and dollar strength.
Will the Federal Reserve Raise Rates?
It is unclear when the Fed will increase interest rates, but it is likely to happen at least once this year. In a conference at the end of 2016, Janet Yellen confirmed that increases were coming, but the timing has to be right. The Fed’s fiscal policy is independent of economic policy coming from the White House, but it is a delicate interaction between the two that truly structures the national economy.
After yesterday’s announcement that no rate increases are occurring now, the market expectations for increases in March declined from 30 percent to 18 percent according to a rates strategist at BMO. Of course, no one actually knows when rates will increase and the Fed gave little indication of when to expect it. For now, the gold market will wait to hear the March decision.
Fed Rates and the Gold Outlook
Gold trading after this announcement saw a bump, but is likely to hold steady for the rest of Thursday, Feb. 2, 2017. After-hours online gold trading showed gold up to $1,210 and could go even higher today.
In December of 2016, the Federal Open Market Committee changed the target range for rates from 0.25 percent to 0.5 percent to 0.5 percent to 0.75 percent. From that information alone, the market knows an increase is bound to happen this year, but it could be several months before it’s implemented.
Gold value declines as rates increase because it makes risk-bearing, higher-yield investments more attractive. With interest rates still on the horizon for some time this year, the strategy for many gold investors will change to accommodate the rate hike.
