Where Will Gold Move to after December 16?



The Fed’s 2015 meetings

The prices of precious metals—and especially gold—for 2015 have most likely been determined by the Federal Reserve’s stance on interest rates. The worst performance was seen after the FOMC’s (Federal Reserve Open Market Committee) hawkish stance in October. The Fed meeting on December 15–16 is just around the corner, and gold lovers have their eyes set on it. With a consensus of almost 70% that the Fed will finally raise the rates is causing investors to move away from precious metals.

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A what-if scenario

As the graph above shows, the likely impact on gold is decided by what the Fed says in its meetings. This meeting may result in the Fed raising the rates in a slow and gradual way as we discussed earlier. The tentative rise of rates of close to 25 basis point may cause gold to plunge to levels of as low as $1000 an ounce. However, many of the market participants assume that such a hike is already priced in metals and may not cause further dips.

Another scenario is that the Fed may raise the interest bars but not by as much 25 basis points. Instead, it would merely give candy to investors by raising the rate by 10 to 15 basis points. Such a move may not budge gold as much as a rise of 25 basis points could. So, the fall in gold may be restricted to say, $10–$20, and not as much as $50. However, these predictions may be completely ruled out by the markets.

In case the Fed ends the day flat without any changes to the interest rates, gold may surge instead of plunging as investors have already started pricing the liftoff.

The changes in the price of gold may also be replicated in the price of ETFs like the SPDR S7P Metals and Mining ETF (XME) and the VanEck Vectors Gold Miners ETF (GDX). Also, mining companies like Newmont Mining (NEM), GoldCorp (GG), and New Gold (NGD) may also be affected by changes in gold’s price.


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