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Gold and Fed interest rates

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Relevance up to 09:00 2022-01-15 UTC+00

The Fed’s interest rates are not a key factor for gold prices. Unlike the greenback, which depends on the regulator’s decisions, gold is less affected by monetary policy changes.

On Wednesday, January 12, gold rose amid a decline in US government bond yields. This happened after the speech of Jerome Powell, the head of the Fed, which triggered the rally of the precious metal. The situation weakened gold, which rose by 0.06% earlier, to $1,819.60. On Wednesday morning, January 12, gold was trading at $1,817.75, fluctuating near this level.

A slight rise in gold was driven by a decline in the yield of ten-year US Treasuries (from 1.746% to 1.732%). According to analysts, US Treasury bond yields fell after the Federal Reserve Chairman announced the earliest possible rise in interest rates and tapering of stimulus.

Over the past three days, gold has risen, having overcome the psychologically important mark of $1,810. The market is focusing its attention on the precious metal amid expectations of the Fed’s rate hike. Traders and investors buy gold as it is an instrument of hedging risks apart from shares, which are sensitive to changes in interest rates.

Currently, gold is standing aside from the interrelation of interest rates and financial instruments.

According to analysts, it is profitable to buy gold during declines, for example, when the price reaches $1,785. In November 2021 the area of demand was $1,760, and in December – $1,720. In the near future, economists expect gold to gain momentum for growth. According to preliminary calculations, it may reach the range of $2,500-$2,600 after a downward correction at Fibo 61.8%.

Financial markets are reassessing the prospects of the Fed’s monetary policy but these changes have had little effect on the price of the precious metal. The current situation shows that gold is an important instrument of diversification. At the same time, gold weakly correlates with key stock indices. The risk is skyrocketing inflation, which the Fed is trying to curb by all available means. If the US regulator and other central banks can curb it without triggering turbulence in the markets, it will become a new stepping stone for gold growth.

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Trading plan for starters of EUR/USD and GBP/USD on January 12, 2021

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