Anticipation of Fed Rate Increase Causes Drop in Gold Price

Fed Rate IncreaseGold has been encountering some downside recently on the expectation that the Fed would be raising rates next month. Investors tend to move funds from the yellow metal toward interest-bearing vehicles during Fed rate increases. Their reasoning is that when you invest in gold, you receive no interest.
Gold prices had fallen more than 2% from $1,247 – the level of their 50-day moving average. But gold showed only its third gain of the month today, Wednesday, May 10 —it’s lowest in eight weeks on news of President’s firing of Federal Bureau of Investigation Director James Comey over what the Whitehouse characterized as his mis-handling of the investigation into Hillary Clinton’s emails. Democrats and other opponents of the President feel that the congressional investigation into Russia’s interference in the presidential election is actually what’s at stake in Comey’s dismissal.
Chief market analyst at Think Markets, Naeem Aslam, claims that investors look upon this political development as a possible hedging opportunity. In other words, should the stock market take a big hit on what could become the biggest negative presidential news since Richard Nixon’s resignation over the Watergate scandal, gold could well resume its safe-haven status.
Silver followed suit with a market jump of $.14 to $16.207 per ounce. Just yesterday, the white metal had closed at $16.067 – its lowest closing price of the year.
Make no mistake. Political turmoil is almost always a good bet for the upside of precious metals, and gold in particular. On Friday, April 7, for instance, when the US fired more than 50 Tomahawk missiles at a Syrian airfield from warships in the Mediterranean, gold and silver encountered a dramatic bump in price.
In the last 15 years, government retail sales have catapulted at an astonishing pace –over two and a half times the levels seen in 2001.
And given the uncertainty of forthcoming decisions in the White House, and a surprise Senate modification of the Health-Care bill handed to them by the House of Representatives, we’re likely to see other surprises in the near future.
An investor can best prepare for such surprises by purchasing gold. Regardless of a raise in interest rates which ordinarily stimulate lending, and therefore business growth, political unrest is a drag on the economy. And gold represents your best protection against losses in your paper assets, and the depletion of your retirement account.
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