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Metallix Refining Spanish - Fed interest rate hike signals trouble ahead for gold
Metallix Refining SpanishEl Informe MetallixGold NewsFed interest rate hike signals trouble ahead for gold

Fed interest rate hike signals trouble ahead for gold

Posted by: on March 16, 2017

The Federal Open Market Committee has raised interest rates, according to The New York Times. The group made the announcement Wed. March 15 at the conclusion of its latest monthly meeting. This hike brings the federal benchmark rate up one-quarter of a point to the range of 0.75 percent to 1 percent. Many in the financial sector anticipated the move, as various board members had heavily hinted at the hike in the weeks leading up to the March FOMC meeting. Nevertheless, the increase carries with it powerful consequences, especially for precious metals traders.

Prior to the announcement, gold prices fell to around $1,200 per Troy once, MarketWatch reported. The yellow precious metal remained in this territory throughout Wednesday, as the dollar rose.

Fate of gold uncertain
Federal Reserve Chair Janet Yellen cited promising economic growth as the primary driver behind the committee's decision, CNBC reported. This comforted bond traders who were yearning for validation from the central bank, despite the recent stream of positive job growth data. Of course, this kind of news normally leads to losses in the precious metals market but prices seemed to stabilize following the FOMC announcement. Some analysts even expressed confidence.

"[The committee] is saying that it will be slow and steady with rate rises," Peter Spina, president for, told MarketWatch. "The Fed will not want to jeopardize their beloved, much awaited inflation which is picking up, by raising rates too quickly."

"Prior to the Fed announcement, gold prices fell to around $1,200 per Troy once."

Indeed, Yellen and company have been careful not to puncture building inflation, leading them to take a more measured approach to managing interest rates. Spina even suggested the hike could boost precious metal prices in the short term. The analyst presented another scenario in which traders pull back from stocks and bonds due to the Fed's reluctance to institute more extreme increases. Should this situation materialize, gold could rally in the long term and reach the $1,400 or $1,500 threshold. This would certainly galvanize precious metals and jump-start the market.

Overseas events impact market
In addition to the interest rate hike, gold traders monitored key events unfolding overseas, The Wall Street Journal reported. An ongoing strike at the BHP Billiton Escondida mine in northern Chile continues to draw interest. The work stoppage has lasted more than a month. Another strike at the Cerro Verde copper mine in Indonesia is receiving similar attention. These events, along with building economic and political uncertainty in Europe, could bolster precious metal prices and keep gold, platinum and silver traders interested even as demand for safe haven investments falls in the U.S.

Despite faltering prices later in the year, gold performed well over the course of the 2016. Should these forces materialize and converge, the yellow precious metal could continue that improvement in 2017.