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August 30, 2016

Gold Stalls as U.S. Rate Hike Looms

Gold Technical Chart as of Aug. 30, 2016 10 am U.S. Central Time, Courtesy of Investing.com

As the investment world waits on the speech that FED Chair Janet Yellen is due to give on August 26, the price of Gold and Silver have stalled and even momentarily decline amidst rumours that another interest hike is coming, and as early as September. Just a few days ago, the FED vice-chairman Stanley Fischer saying that the US economy was close to hitting the central banks’ targets for employment and inflation, supporting the theory of the interest rate being increased which, for all spread betting and trading enthusiasts out there, would undoubtedly strengthen the Dollar on the Forex markets but weaken the position of Gold and Silver. 

India, one of the largest importers of Gold, has reported a slowdown in the sales and imports for the year are expected to fall to their lowest in over 7 years. With a potential 40%+ drop year on year, it seems that the steep price is just not as attractive as it once was, but should the FED decide to increase the interest rate and consequentially decrease the price of Gold, a resumed appetite for the commodity is likely to take shape and ensure prices do not fall too far.

However, despite innumerable amounts of evidence pointing to a hike in the near future, it is not all doom and gloom for the commodities. Russia has been stockpiling gold in vast quantities, adding over 200 tonnes last year and a further 90 in 2016 to over 1500 tonnes in total, although this could be a reaction to falling Oil prices and an array of International sanctions levied on them over the last few years.

So what should you be doing if you are a spread bettor or trader for the moment? Those who are happy to take risks could bet on the FED delaying any rate rise till next year by supporting either the Dollar to go down or Gold to go up in the short term. Several analysts have commented that no matter what happens in the US, the instability of Italian banks, political uncertainty in France and the devaluation of the Chinese Yuan show that the world is still reeling over deep economic and political changes, which they believe will ensure that the price stagnates or increases rather than falls. 

However, if you choose to follow the majority including Spread Betting broker City Index, who argue that post-Brexit - Gold is still hanging by a knife-edge, should back the Dollar to increase and hold position until the FED eventually announce the expected increase.

For more information on the price of Gold and other commodities in the market, check out our Investing section here and stay up to date with our latest articles. 

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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