Feb 062015

Gold futures decline as Fed meets regarding interest rates hike

Gold futures immediately fell as The Fed held a two-day meeting regarding the interest rates hike that is anticipated to happen in 2015. If interest rates increase, it will be the first time since 2008 that the federal funds will increase to more than 0.25%.

Gold futures for April delivery dropped 0.4% to $1,287.40 an ounce on the New York COMEX division after economists have assessed the outlook for the U.S. interest rates. Gold prices decline when interest rates go up because the precious yellow metal only offers yields through price gains. Gold’s spot price is currently swinging at around $1,260 – $1,270 per ounce.

The president of the Federal Reserve Bank of St. Louis, James Bullard, said that investors were mistaken to think that the U.S.’ central bank will delay the interest rates hike that is set to take place in the middle of 2015. Bullard believes that the interest rates hike will soon get implemented because the country is constantly showing signs of recovery.

Gold prices skyrocketed to more than 9% at the start of the year on false speculations that The Fed will hold off raising interest rates due to a bad economy. However, strong economic data and declining jobless claims in the U.S. have prompted The Fed to seriously think about tightening its monetary policy. Several other factors lent support to gold’s rally at the start of the year, including the European Central Bank’s Quantitative Easing and low prices of oil that helped improved the margin of miners. India’s easing of its gold importation law, which forced importers to re-export 20% of their products before the rest can be sold in the country, also helped increase the precious yellow metal’s demand.

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