How Central Banks Are Affecting Gold Movement



Central bank impact

Much of the price fluctuation in gold in the past few years has been a result of the US central bank and its tentative move on the interest rate. Gold fell about 10% during 2015 due to the hovering fear that the Federal Reserve would hike interest rates offered on the Treasuries. Higher interest means that more investors would opt for yield bearers rather than non-yield bearers. Gold lost its appeal as a haven and thus fell.

However, 2016 started with a bang, and the global unrest sent the precious metals sailing north. Gold, silver, platinum, and palladium have risen 20.6%, 25%, 18.6%, and 6%, respectively, on a year-to-date basis.

Central banks around the world are affecting the movement of gold with their monetary policies. Japan and Europe are relaxing their monetary policies with lower rates, which makes gold shine. The loosening policies and the volatility of the markets are supporting gold.

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Fed on gold

The Federal Reserve, on the other hand, may put a lid on gold. Gold is being pushed from both directions, so it remains to be seen where gold will go from here. Investors are closely watching the hedge funds and money managers for help with investment decisions.

For exposure to precious metals, investors can consider funds like the VanEck Vectors Merk Gold Shares (OUNZ) and the leveraged ProShares Ultra Gold (UGL). These two funds have increased 20.1% and 41.1%, respectively, following the gains in gold.


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