Forecast: Gold Prices Set For New Dip After Interest Rate Hike?

Thursday, December 15, 2016

fine gold

Anyone watching this space yesterday knows how important the Federal Reserve’s announcement of an interest rate hike has been to the economy as a whole. Although the stock market has shown some resilience—first heading down, but rebounding early on Thursday morning…the price of gold has suffered .

But today’s gold price forecast is about more than just what happened today. In other words, can we expect that the price of gold will continue to dip, and if so, just how low can it go? Let’s look at the latest news and see what we can find.

Gold’s Reaction To The Latest News

First, a roundup of the latest. We know that gold markets can be influenced by rate hikes, even if the correlation is not always present. Still, in the short-term, it’s sensible to expect some downward pressure on gold thanks to investors moving their money in other directions.

When gold is seen as a strong hedge and a strong place to put savings, it tends to do well. But investor demand could be interpreted as very low right now thanks to the recent success of stocks as well as some more optimism in bonds. Paired with a strong U.S. dollar, that can mean some tough days for gold.

The unanimous vote for an interest rate hike shows that the Federal Reserve is willing to aim for higher interest rates, which can sometimes be very bullish for bonds. That means we’re not likely to see increased demand for gold as a savings hedge in the immediate future.

Is It Accurate To Predict A Gold Bull Run Now?

MoneyMorning.com shows some signs of life for those who are considering buying gold. According to the site, Wall Street’s predictions on gold for 2017 haven’t done much to inspire confidence. Many expert predictions have gold remaining flat for the next year, which is not enough confidence to make many investors consider buying gold.

But there’s still a glimmer of hope that whenever the next gold bull market does arrive, it could do so with a vengeance, hurtling up to new highs for gold. Whether or not this will be true, of course, remains to be seen.

Watching The Dollar Trends

As gold goes, so goes the dollar—usually inverse of each other. The US dollar has been strong of late, providing perhaps the primary reason why gold has been declining off of its yearly highs.

With higher interest rates, economic activity such as loans tend to be diminished while savings are rewarded. That can potentially mean strength in the US dollar. However, it’s worth noting that the interest rates the Fed is currently seeking are still very low historically.

In forecasting the price of gold, remember to keep current interest rates in their proper context. Although the Fed has hardly raised interest rates over the last ten years, looking at a longer timeline shows you how low they really are historically. In forecasting the price of gold, pay attention to every economic indicator you can find. 

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.