Precious Metals

Gold Investing

The gold price got a boost after the Fed left the target range for the benchmark rate unchanged. At close of day Wednesday it was up about 18 percent year-to-date.

Gold’s 2016 hot streak continued Wednesday after the US Federal Reserve wrapped up its most recent two-day meeting. 
The yellow metal closed the day at $1,262.10 per ounce, down slightly from a high of $1,263.10 reached earlier in the day. Year-to-date, it’s up an impressive 18.7 percent.
As mentioned, gold’s most recent bump up came after the Fed’s latest meeting. According to Bloomberg, market participants were encouraged by the news that the central bank will leave the target range for the benchmark rate unchanged at 0.25 to 0.5 percent.
Explaining why that’s positive for gold, Joe Foster of Van Eck Associates told the news outlet, “[t]he Fed decision implies that economic growth is weak. A weak economy and the inability to have effective monetary policy creates all sorts of financial risks, risks in the banking system, risks to the economy, and those type of systemic risks are what gold rises on.”


It’s also worth noting that while in previously four rate hikes were expected in 2016, now only two are anticipated. Specifically, Bloomberg states that policy makers are calling for two quarter-point increases this year, and notes that odds of a rate hike in June have dropped from 54 percent to 38 percent.
Watch Fed Chair Janet Yellen’s two-minute statement here:

That’s certainly all bullish for gold — indeed, as Gold Newsletter editor Brien Lundin succinctly put it when speaking with MarketWatch, “[a]ny indications that the Fed is showing less enthusiasm for rate hikes is bullish for gold.”
But as savvy investors are well aware, the Fed isn’t the only driver of the gold price — that of course means that even if the Fed is buoying the gold price there are still threats to the metal’s positive trajectory. Luckily, it seems that those threats are (at least for the moment) fairly minor.
As Lundin pointed out to MarketWatch, many major economies aren’t following the US in its monetary tightening. Notably, the European Central Bank moved to cut negative rates even further earlier this month, while the Bank of Japan left its monetary policy unchanged.
“Continued low or negative rates around the world, coupled with a higher-than-usual risk environment, could plausibly nudge gold back towards” the $1,400 neighborhood, Katrina Lamb, head of investment strategy and research at MV Financial, told the news outlet.
It’s impossible to say what will end up happening, but at least for now it seems that gold bugs can rest easy.

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

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