Why Did The Gold Price Nosedive After The June Fed Meeting

The Fed is now discussing raising interest rates as early as 2023, revising their previous stance to keep rates around 0 until 2024. From the meeting yesterday, it appears that there might be two possible hikes in 2023. Consequently, the gold price, spot price of silver, and other precious metals nosedive and continue to sink today.

Weekly gold price chart Bullion Exchanges

What Happened: Changing Rates

Changes in interest rates can be both positive and negative. The upside to increasing interest rates is brought on by the fact that there is increased spending. Lower rates can encourage people to borrow, take on loans, and invest. However, when rates are low, spending can rapidly expand over time. This reveals the underlying inflation. So, increasing interest rates discourages rapid spending as it slows the rate at which money is trading until inflation returns to a more sustainable level.

But how does this affect the gold price?

Inflation is something that contributes greatly to the spot price of silver and gold. As people worry about the buying power of their fiat currency, they want to hedge it with something safe, like precious metals. The Fed announced the move towards a hawkish monetary policy, which means they are strategizing about tackling inflation. Basically, this is not a positive outlook for physical gold and silver, and people may be running back to cash.

This announcement is not yet official. Some speculate that the Fed is testing the market reaction. That being said, the dollar is up higher, weighing significantly on the current price of gold and silver.

Inflation

Inflation is on the rise, but apparently not at a rate the Fed deems problematic. The prediction for inflation is now 3.4% in 2021 as a whole. But, this is still up 1% higher than their previous estimate earlier this year. Recent reporting reveals that inflation is currently running hotter than 3.4%. And yet, Fed Chairman Powell responded by saying that current numbers are "transitory." His dismissal of current inflation rates had markets optimistic yesterday as they ran away from their hedges. The USDI reached a 2-month high overnight. Additionally, bond and note yields rose, which tend to trade inversely with the gold price.

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Disclaimer: This article is not meant to serve as professional economic advice. Any action you take upon the information from this article and website is strictly at your own risk.

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Ross Tolstedt 1 month ago Member's comment

This was a good read. I own CEF and some PHYS and find difficult to figure out why they change value the way they do.