After dropping under the $1,200-per-ounce mark, the gold price trended upward on Wednesday (March 15) after the US Federal Reserve announced that it will be raising interest rates for the second time in three months.
In a statement, the Fed notes that it has decided to raise rates by 25 basis points to a range of 0.75 to 1 percent. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation,” it says.
According to The Globe and Mail, the rate hike comes on the back of strong economic growth, job gains and “confidence that inflation is rising to the central bank’s target.”
By 2:06 p.m. EST, the yellow metal had climbed to $1,212.34, up 0.67 percent over the previous seven days.
— Federal Reserve (@federalreserve) March 15, 2017
Fed Chair Janet Yellen said in a live announcement (see above) that gradual rate hikes will be appropriate over the next few years to sustain economic expansion.
Interest rate hikes can be negative for gold, but that isn’t always the case, especially if market watchers anticipate a hike. As Market Realist points out, “investors should note that, following the first rate hike of the current tightening cycle in December 2015, gold started 2016 on very solid footing. The Fed’s rate hike had been anticipated by market participants for some time.”
Speaking to Reuters, ABN AMRO Bank analyst Georgette Boele made a similar comment. “We see some stabilization (in gold),” she said. “The Fed hikes are roughly priced in. Real yields are not rising that fast. Therefore, gold is protected on the downside.”
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.