Gold price rises due to lack of Fed interest rate hike

The Gold price managed to rise by almost 2% on Thursday to above $1,200 per troy ounce, after the Federal Reserve announced that it would wait a little longer before raising interest rates. The U.S. central bank has been hinting at raising interest rates since tapering its QE program, but is quietly waiting for circumstances to call for it.

For the time being, there is no need for an interest rate hike, as the dollar has already become relatively strong against other currencies. Higher interest rates would make it even more attractive to hold dollars, further strengthening the value of the currency. Janet Yellen said yesterday during a Federal Reserve press conference that an interest rate hike will not be on the agenda in the coming meetings. This means that the issue will probably not be on the agenda again until April.

The Federal Reserve writes in its FOMC Press Statement that the U.S. labor market is showing a robust recovery. The good growth figure of the third quarter is also reason for the central bank to assume that enough is being consumed and invested.

Gold price rises

The lack of a rate hike apparently comes as a surprise to investors, as the precious metals reacted strongly to the news. The gold price rose by 1.7% to €979 per troy ounce, while the silver price rose by a similar percentage to around €420 per kilogram. In dollar terms, the gains were much smaller, because the currency still managed to appreciate against the euro.

Normally, rising real interest rates are negative for the price of gold, because the precious metal does not earn interest or dividends. The higher the interest rate, the greater the cash flow that investors who have invested their wealth in physical gold will miss out on. Due to the outbreak of the financial crisis, banks have cut interest rates extremely, making gold more attractive as an investment. In addition, uncertainty about the survival of the financial system unleashed a flight to safe havens.

In the last two years, gold has fallen out of favor with many investors, which is mainly related to the good returns on stocks and bonds. Investors who are still Buy gold preferably do so in the form of physical gold.

Federal Reserve waits a little longer before raising interest rates