Yellen Helps To Push The Value Of Gold Up!

Wednesday, March 30, 2016

yellenGold is largely dependent on moves made by the Federal Reserve. To be sure comments made by the Federal Reserve Chair Janet Yellen recently snapped a losing streak that we've seen in the price of the precious metal. Today, we'll talk about the statements made by Yellen…and why this has anything to do with the price of gold; what we're seeing from the precious metal as a result; and what we can expect to see moving forward. So, let's get right to it.

Comments Made By Janet Yellen

Back in December, the Federal Reserve made the decision to increase its interest rate from 0.25% to 0.50%. At the time, Janet Yellen announced that the Fed is planning on increasing its rate between 2 and 4 more times throughout the year of 2016. So, markets have been on edge waiting on a rate hike. However yesterday, Janet Yellen made statements that showed that an interest rate hike isn't likely in the month of April…and that the Fed is likely to be more careful when thinking about raising interest rates in the future. Here's a snippet of what Yellen had to say...

“...those effects have been at least partially offset by downward revisions to market expectations for the federal funds rate that in turn have put downward pressure on longer-term interest rates, including mortgage rates, thereby helping to support spending. For these reasons, I anticipate that the overall fallout for the U.S. economy from global market developments since the start of the year will most likely be limited although this assessment is subject to considerable uncertainty...”

Why This Has Anything To Do With The Price Of Gold

Gold, like most other commodities, is largely priced using the United States dollar…and the Federal Reserve, in a way, dictates movements in the USD. You see, if the Federal Reserve were to raise its interest rate in the month of April, it would essentially be adding value to the USD, as many investors had expected. With a higher value USD, gold would become more expensive in other nations, causing declines in demand, and ultimately price. As such, investors that were expecting a rate hike had already started to cause the price of gold to fall. Nonetheless, after Janet Yellen made these statements, investors looked to gold -- and decided it was time for the price to go up again.

What We're Seeing From The Price Of Gold

Because investors are now expecting that the Federal Reserve won't be raising the interest rate in the month of April, demand for the precious metal has risen. Consequently, the value of the commodity is up. At the moment, gold is trading at $1,228 per ounce, up from $1,210 per ounce prior to statements made by Janet Yellen.

What We Can Expect To See Moving Forward

I have an overwhelmingly positive opinion of what we can expect to see from the price of gold. The reality is that the Federal Reserve is not likely to increase the interest rate. As such, low interest on the USD will further support price growth in the value of the commodity. On top of the Federal Reserve, other supporting factors include declining oil values, high valuations in the market, geopolitical uncertainties and global economic uncertainties. Between all of these issues, I maintain my opinion that gold is likely to have a strong year throughout the year 2016. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.