Ignore Fed Nonsense – Rising Interest Rates Positive for Gold

Gold Sell Off On Fed Noise – “Interesting Times” To “Support Gold”

Gold prices in dollar terms came under renewed pressure today testing strong support at the $1,200/oz level. Gold dropped another 1% to near a 6 month low and is set for a second week of falls after the dollar soared again after Federal Reserve Chairwoman Janet Yellen suggested a U.S. interest-rate hike could come “relatively soon.”

Source: New York Federal Reserve for Fed Funds Rate, LBMA.org.uk for Gold (PM fix)

Yellen’s prepared comments to U.S. lawmakers yesterday sent gold in dollar terms to its lowest finish since June 2, at $1,216.90 an ounce. It is worth noting that gold’s weakness this week is very much a case of gold prices in dollar terms. Gold in euros has risen from €1,130/oz to €1,137/oz and is essentially flat in sterling pound terms. Gold has risen in Swiss francs, Japanese yen and Australian dollar terms.

Yellen did little to dispel expectations of an interest-rate hike as early as December. The prospect of higher interest rates is considered by less informed market participants to be negative for gold, ignoring the fact that gold prices tend to rise when interest rates rise as was seen in the 1970s and again from June 2003 to June 2007 when interest rates rose from 1% to 5.25% and gold rose from $346 to $651 per ounce (see table above). Read full story here…