What Today’s Federal Reserve Announcement Could Mean For Gold Prices

Today, the Federal Reserve is expected to raise interest rates—a move that always has what USA Today calls “domino effect” on the economy as a whole. Naturally, those interested in the price of gold always watch these interest rates closely, since they can dramatically impact not only the economy, but the way people think about gold and precious metals around the globe.

But what exactly does an interest rate hike do to alter the price of gold, or gold markets as a whole?

Thinking About The “Flow” Of Money

Perhaps the best way to view higher interest rates is that it discourages the fast flow of money. If interest rates in a variety of fields—from savings accounts to car loans—are higher, then that means that debt becomes more expensive while savings becomes more profitable. In essence, higher interest rates encourage savers and discourage spenders.

The idea behind lowering interest rates during tough economic times usually comes about as a result of this thinking, as the “flow” of money is seen as good for the economy: it can stimulate demand and keep economic activity moving. In good times, when people have more money and can afford more debt, it makes sense to keep interest rates higher.

A Low Relative Interest Rate

Even knowing all of the above, don’t forget that the current interest rates are still relatively low. Interest rates have only begun to tick back up again in recent years after an extended stay at zero during a slow and tepid economic recovery following the Great Recession.

That means that you may not see an incredible amount of movement in any particular direction thanks to one interest rate hike—especially if the Federal Reserve is indeed planning to have multiple hikes this year alone.

Effects Of Interest Rates On Gold

Generally, a higher interest rate is thought by many investors to be bad for the price of gold. After all, if investors can’t get a lot of money by keeping their funds in savings and if they believe the stock market isn’t doing well, then gold appears as a more attractive safe haven, driving up investor demand. But this isn’t as direct a correlation as you might think, either. The truth is that no one knows whether gold is going to go up after the Federal Reserve’s announcement later today.

What’s important to watch for is what the Federal Reserve has to say about the state of the economy—and how the market reacts to it. As you watch the stock markets unfold in 2017 you’ll get a better handle on whether gold prices may be in store for another major boost like they were in 2016. Keeping tabs on news stories like the Federal Reserve’s interest rate decisions is a good way to keep aware of what’s going on in the world and with central banks.

The Los Angeles Daily News put together a list of three things to watch from the Federal Reserve today. As you think about the price of gold and where it may be headed, keep that in mind as the economy moves forward—perhaps with higher interest rates than it did before.