Fed Hikes Interest Rate, Signals More to Come

Gold Price Fends Off Usual Hit; Predicted to Soar by Year’s End

The United States Federal Reserve carried through on weeks of speculation by boosting its benchmark interest rate by a quarter point to a range between 0.75 and one percent. This marks the second straight quarterly increase, and the first of three forecast by the Fed for this year. As usually occurs in the face of higher interest rates, the price of gold weakened to a five-week low… but BEFORE the official announcement by Fed Chair Janet Yellen. The spot price and futures for April subsequently stabilized, and both rebounded afterwards.

Given that several Fed governors had been sending strong signals of an increase over the past few weeks, most observers said it had already been factored into the markets by the time of its announcement. What may have caused more eyebrows to rise was the immediate performance of precious metals. Analysts suggest the U.S. interest rate is being eclipsed by larger issues both within and without the nation’s borders. That was brought home by a major bank’s forecast of significant growth in the price of gold by the end of 2017.

Bank of America Predicts $200 Rise in 2017 Gold Price

A research note from the corporate and investment banking division of Bank of America may have something to do with gold’s resilience in the wake of the interest rate hike. Pointing to expectations of higher inflation and global uncertainty due to a lack of movement on the Trump administration’s spending plans, rising protectionist sentiments, and this year’s elections in Europe, Bank of America Merrill Lynch predicts “prices at $1,400 (per troy ounce) by year-end.”

Noting that the tighter monetary policy push underway at the Fed is not conducive to gold strength, the Bank’s conclusion seems based on what may happen across the ocean, where the post-Brexit European Union faces a long road in reinventing itself (and Scotland threatens another independence referendum) and major nations look inward as their populations consider their political futures.

Trump vs. Yellen?

Add to these uncertainties the relationship of the White House to the Federal Reserve Chair. As a candidate, Donald J. Trump accused Janet Yellen of holding interest rates down to help the previous Democratic administration politically. Now that he is president, interest rates are due to rise steadily which holds the potential of hindering Trump’s lofty predictions of 4% economic growth. The measures he intends to realize expansion of this magnitude (infrastructure spending coupled with tax cuts) have yet to materialize. Yellen said it’s simply too early to tell as it’s incumbent on the government to show us the money first. Her term as Chair does not expire until the end of January 2018, although the President could choose to remove her. The number of items on the “wait and see” list seem to be growing daily.