Impending Monetary Policy Decisions on the Price of Gold



Market Realist – What is the Federal Reserve up to?

The monetary policy decisions by the Bank of Japan and the Federal Reserve, which were expected to be solemnized on September 21, 2016, will have an impact on bond yields. There have been mixed opinions regarding a potential hike in the Fed rate in September or December 2016.

Mark Vitner, senior economist at Wells Fargo, does not endorse a hike in the Fed rate at this time due to the sluggish GDP, vulnerable global economic condition, and weak economic data.

On the other hand, Mark Zandi, chief economist at Moody’s Analytics, expects a hike of at least 25 basis points considering the strong job market, a possible increase in the inflation rate, recovery in the US market, and a relatively stable global economy.

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On September 12, 2016, the Federal Reserve governor, Lael Brainard, hinted at a possible delay in the hike of the Fed rates. This was followed by a 0.5% dip in gold prices, which continued as investors remained more anxious about a hike in the Fed rate. The S&P 500, which gained 1.5% on September 12, lost all the extra gains on the next day.

Russ Koesterich prefers to go bullish on gold despite its low volatility. There is no opportunity cost involved with holding gold at present, considering the low to negative real rates or interest rates after inflation.

So, it’s no wonder that investors are moving toward stocks and gold rather than paying interest for their own money.

The SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the Vanguard S&P 500 ETF (VOO) recorded YTD growth of 5.8%, 5.9%, and 6.4%, respectively.


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