Gold Price Dives As Fed Rate Hike Concerns Weigh

Gold has taken a ride recently. After falling from highs reached earlier this year, the month of September was off to a good start. However, recent comments from key Federal Reserve members have led to some concerns. As a result, the price of gold is retreating at the moment. Today, we'll talk about the comments made, who they were made by; what this has to do with the price of gold; and what I'm expecting to see from the precious metal ahead.

Boston Fed President Supports Increasing The Rate

Recently, the Boston Federal Reserve Bank President, Eric Rosengren said that he is in favor of gradual interest rate hikes. In fact he went on to say that if the Fed waits too long on the issue, some asset markets, specifically commercial real estate, could see big issues ahead.

This sparked concern among investors as Eric Rosengren is a voting member on the FOMC this year. While he did not make it clear as to when he thought the Fed should increase its rate, he believed it should happen soon. Here's what he had to say.

“My personal view, based on the data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy...”

In his statement, Rosengren went on to explain that commercial real estate prices adjusted for inflation and have been rising rapidly over the past five years. He also explained that he was concerned with the growth in prices of multi-family properties. Explaining this phenomena, Rosengren had the following to offer...

“Because commercial real estate is widely held in the portfolios of leveraged institutions, commercial real estate cycles can amplify the impact of economic downturns as financial institutions need to write down the value of loans and cut back on lending to maintain their capital ratios...”

Clearly, Rosengren had one key message. Low rates for too long are a bad thing. This message led to shock waves, sending the price of gold downward along with individual stocks, market indices and more.

What Does This Have To Do With The Price Of Gold?

Understandably, the Federal Reserve's interest rate is an incredibly hot topic among gold investors. The reason for this is relatively simple. First and foremost, gold is priced using the USD. Therefore, when the USD rises in value, gold becomes more expensive around the world, leading to declines in demand. When the Fed does raise its rate, the value of the dollar will likely rise, leading to downward pressure on the price of gold.

What I'm Expecting To See Moving Forward

I have a relatively mixed opinion of what we can expect to see from the price of gold. In the long run, I'm expecting to see gains as the result of increasing stimulus around the world along with further questions in regard to global economic conditions. However, in the short run I'm expecting to see more volatility. Indubitably, a rate hike would be a big deal that would likely lead to short run bearish movement in gold. Nonetheless, I believe that the upward potential here far outweighs the downside risk.