Interest Rate Hikes and Gold Prices: What’s Next?

The Federal Reserve recently confirmed the first interest rate hike in nine years, and the price of gold hit near six-year lows the a day after. And while some economists are predicting that the price may fall even further, market factors remain uncertain, leaving many wondering what will happen next.

Here’s what you need to know about the impending rate hikes:

• A recent NY Times article “Rates Are Going Up. What Could Go Wrong?” suggests that the rise in interest rates, combined with factors abroad, may halt the slow economic expansion the U.S. has enjoyed since 2008.  The American dollar is strong internationally, but the economic stagnancy in Europe and Asia means uneven currencies might eventually pull on the dollar’s strength and limit further interest rate hikes.

• The Wall Street Journal suggests that the Fed’s dovish plan to slowly raise interest rates may pave the way to higher than hoped for inflation. High rates of inflation tend to push the spot price of gold upward as investors turn towards the precious metal as placeholder for wealth.

• An article on Forbes addresses the role that crude oil prices have on the precious metals industry, noting that the unexpectedly low oil prices this year have taken a toll on metals, including gold and silver. The article suggest that crude oil prices may not be able to go much lower, and thus the often-correlated prices of precious metals may not dip much lower.  Later, this article predicts a “major bottom” for gold in the coming months.

Due to stochasticity in the market, movement in spot price remains difficult to predict, but with gold and silver showing a 10% loss for the year, we’ll be as interested as you to see what 2016 brings.  Keep up to date on investment news for precious metals by continuing to read our blog!