Gold Price is Up, but Looking “Vulnerable” After Fed Comments

The yellow metal was poised to finish higher on Wednesday following a four-session dip.

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The gold price has been on the rocks this week, but by Wednesday (February 15) it was on the rebound and looked set to finish higher than it did in the four previous sessions.

According to MarketWatch, the yellow metal rose from $1,217.40 per ounce on Wednesday and was sitting at $1,232.13 as of 4:28 p.m. EST that day. Its increase came on the back of a weaker US dollar, the news outlet says.

Unfortunately for gold bugs, the yellow metal’s leap “look[s] vulnerable,” largely due to recent comments from Federal Reserve Chair Janet Yellen.

On Tuesday, she hinted that the Federal Reserve could raise interest rates next month. As per the Independent, Yellen said that a rate increase “would be appropriate if the economy remains on track and key inflation and labour targets are met.”

“Waiting too long to remove accommodation would be unwise, potentially requiring the [Federal Open Market Committee] to eventually raise rates rapidly, which could risk disrupting financial markets and push the economy into recession,” she added.

It goes without saying that gold is sensitive to interest rate changes. Generally low interest rates make the metal a compelling investment, while high interest rates make it less attractive.

Explaining why gold has not yet reacted negatively to Yellen’s comments, Michael Armbruster, principal and co-founder at Altavest, told MarketWatch that precious metals are “momentarily disconnected” from their typical correlations with outside markets.

“It could be that gold’s strength is evidence of skepticism of the sustainability of the stock market’s melt-up,” he continued. “We expect something to give sooner rather than later, either stocks and bonds will reverse course or the precious metals will falter.”

Nico Pantelis, head of research at Secular Investor, offered a different opinion. He said that the gold price “also shot up during the last rate-hike cycles,” meaning that an acceleration in rate hikes could actually be “very bullish for gold.”

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Looking ahead, panelists at FocusEconomics are projecting a “volatile” year for the gold price. Overall, they expect the metal’s price to average $1,199 in Q4 2017; they then see it picking up to $1,245 in the final quarter of 2018.

While those aren’t overly bullish predictions, most panelists are confident that the gold price will stay above the $1,000 mark for the year. No doubt it will be an interesting year for gold, and that should keep investors on their toes to say the least.

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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.

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