The hike in longer-term interest rate scares bright future of gold price. It is a disastrous event for the investors and market analysts alike. So, they have to find out where the future will lead the metal. Gold prices have always been affected by economic conditions and further, central banks policy adjustment, therefore such impact of monetary policies on gold prices become more and more complicated and intricate.
The market players often worry that the increase in the long-term interest rates can make a difference in the bond market and reduce the demand for the gold as an investment option. In the past, gold was used as replacement for currencies in times of inflation and uncertainty, and as a result, it took control of much of the market share in times of market volatility or when inflationary pressures mounted. Nevertheless, gold demand can be volatile in periods of rising interest rates as the profits of bonds and dividend paying stocks can be sexier which indirectly leads to the relative lure of gold reducing.
The other key variable affecting the current move in longer-term rates is the market’s view of the direction of the monetary policy stance by the Central banks especially the Federal Reserve. In the same way, the growth of green energy in the sector forced the government to review their production and renew energy as well as energy efficiency mandating for oil and gas equipment manufacturers. An initial course could be raising the interest rates in the short-term or sending a signal to stop buying assets that could lead to the increasing of the rates in the long-term.
Gold response to higher long-term rates is complex and depends on numerous variables, including the size and speed of rate increases, inflation concerns and market psychology which accompany the changes in much shorter periods. Although some investors could interpret soaring rates as a reflection of strong economic recovery, and consequently allocate their funds to riskier assets, there appear others whom would rather see them as a sign of higher financial costs and thus, utilize safe-haven commodities like gold.
But apart from gold policy issues, geopolitical tensions, currency fluctuations, and investor sentiments are also accountable in the short term gold price possibility. Geopolitical strains and new economic uncertainties may trigger a shift in investor behavior that would directly lead to a surge in the demand for gold as a safe haven asset, unlike the pressure on the downside exerted by the strengthening of U. S. interest rates.
In the next week, the market watchers will be releasing various economic indicators, and central bank speeches for better understanding of the future. Furthermore, any new venture into novel geopolitical developments shall also be noted for the trend of the long-term rates and the immediate impact in gold prices. Though the adornment for gold is in grey, shrewd investors may remain non-commodity as they must be able to diversify their portfolio and watch out for the coming events to stabilized the financial market.
