Last week’s rate hike by the Federal Reserve negatively impacted gold prices in the days leading up to and following the announcement on June 14, as illustrated by the chart below.
London Fix Gold Prices, Source: Kitco
The Fed cited strengthening household spending and business fixed investment amid steady job growth as reasons for the rate hike, in order to facilitate employment growth while maintaining price stability. Moreover, the Fed is expected to raise rates by an additional 25 basis points over the remainder of the year.
Gold is largely viewed as a safe-haven asset from an investment point of view, with investments in the metal generally made in order to hedge against macroeconomic or geopolitical uncertainty. While uncertainty surrounding geopolitical tensions in the Middle East and elections in Europe have kept prices elevated for a significant part of the year, steady economic growth in the U.S. and a rally in the stock markets have acted as dampeners on the prices of the metal. Expectations of U.S. economic growth are driving investors away from gold. The potential enactment of President Trump’s legislative agenda – particularly a massive infrastructure overhaul – and an additional rate hike by the Fed will likely keep gold prices in check in the coming months. However, the lack of certainty regarding legislative progress in Washington should prevent prices from declining considerably. The following chart illustrates our forecast for gold prices, with prices expected to average marginally lower this year as compared to the last one.
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