Gold Lower As Interest Rate Decision Approaches

Gold prices have been holding fairly steady although prices dipped a little on Tuesday, which is in anticipation for the interest rate decision that will come later this week. The interest rates are expected to finally go up after nearly 10 years at historic lows, and this decision is weighing heavily on investors who have been shedding their gold like there is no tomorrow.

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When you look at the gold-futures contract for February delivery, it ended up falling .2 percent which is $1.80 and is now down to $1,061.60 a troy ounce. This has been the lowest since December 3rd and of course we are talking about on the Comex division of the New York Mercantile Exchange. There have been lower prices on the gold market for a little while now, but gold has now entered the five-year low mark on the expectation that indeed the Federal Reserve will raise the interest rates. This would be the first time since 2006 that interest rates have gone up, and it means that investors are now looking for other options that give them interest.

A lot of traders on the markets have been saying that the improvements both in the auto sector and property sector, as well as the stronger labor market all point to the fact that those emergency measures put into place during the financial crisis are no longer needed. If the interest rates go up as expected, then that will hurt the gold prices even more. This is because not only does gold not pay interest, which is something investors like in these situations, but it also ends up costing money to hold onto.

It is not too much longer that investors will have to wait for a decision on the interest rates, as the meeting started today, and a decision on interest rates will be known by 2 pm on Wednesday. The Fed funds futures, which is how investors bet on the decision regarding monetary policy, is showing a 79 percent chance of an interest rate hike. This is actually higher than it was a month ago since then it was only at a 68 percent chance, so this means traders and investors are putting more of their investments towards what will help them during the interest rate hike. Some people are saying that Wednesday is going to be a crazy day with a lot of casino-type of betting and gambling going on, at least for short-term investments.

When it comes to gold, it seems that the interest rate hike has already been factored in, but the key will be the wording of the big announcement on Wednesday. How the announcement is worded is what really will decide whether or not gold will move negative or positive in the next few weeks. If the announcement says that there will be a slow and steady interest rate hike going on then investors are more likely to go back to gold for a little while. If this announcement is more of a brisk tightening of monetary policy then it will end up dipping gold even lower than it already is. So right now gold prices have already been holding at what it would if the announcement was of an interest rate hike, but the actual wording will be what could sink or keep gold holding steady.

Beyond that, since gold is traded in dollars, the stronger the dollar is the more expensive it becomes for people and buyers who are using other currencies to make these purchases. The dollar has been gaining ground on both the yen and the euro, and this makes investors even more apprehensive about buying gold since it costs more with the other currencies. The gold market has been seeing quite a bit of pressure since the dollar is continuing to get stronger against these other currencies, and this could hurt the gold prices even more than the interest rate hike and the wording of the announcement. Since the interest rate hike is factored into gold this week already, beyond the wording of the announcement, it comes down to how the dollar performs against these other currencies.

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Jeanne Rose
Jeanne Rose lives in Cincinnati, Ohio, and has been a freelance writer since 2010. She took Allied Health in vocational school where she earned her CNA/PCA, and worked in a hospital for 3 years. Jeanne enjoys writing about science, health, politics, business, and other topics as well.