U.S. Federal Reserve Meeting Will Affect Gold Prices
The U.S. Federal Reserve will hold a two-day meeting, where interest rates will likely be held steady, leading to an increase in gold prices.
While data coming from the United States is pointing to a strengthening economy, the U.S. Fed is still unlikely to raise its interest rates. The Fed is more likely to maintain the dovish tone it struck earlier in the year, when the it was first expected to spike rates.
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After that, the price of gold reached $1,255 per ounce.
Gold prices often have an inverse relationship with the U.S. dollar. Higher interest rates would likely correlate with an increased demand for the Greenback, and therefore help bolster the dollar. Such a move would weaken gold demand and value.
Earlier in the week, data was released from the Atlanta Federal Reserve tracker of gross domestic product (GDP), which projects 4.3% growth in the second quarter. (Source: “Gold prices mark 3-week low,” MarketWatch, May 1, 2017.)
These strong numbers served to push gold prices down but, with the Fed meeting this week, starting on Wednesday, the market is anticipating that interest rates will remain static and, therefore, benefit gold prices.
The French federal elections will also be concluding this weekend. With Emmanuel Macron leading in the polls, it’s looking like the pro-euro candidate will likely win out, setting the price of gold back down again, due to the decreased political volatility in Europe.
Tensions have also cooled with North Korea, which was facing direct military threats from the United States. While that conflict is still open, there appears to be less posturing from both sides and, therefore, a return to a more palatable status quo for investors looking to put money into traditional assets versus the risk management asset that gold often serves as.
Other flashpoints around the world—Syria, for instance—have also quieted, at least in the public’s eye, and this has also served to decrease gold prices due to a return to relative normalcy.
