Gold Bounces Despite Fed Rate Rise

The gold price rose 2.3% to $1,230 yesterday after the Federal Reserve raised interest rates in the US amid signs that inflation is moving higher

Karen Kwok 17 March, 2017 | 10:51AM

The gold price rose 2.3% to $1,230 yesterday after the Federal Reserve raised interest rates in the US amid signs that inflation is moving higher. The gold price reaction was a surprise; in general when interest rates rise, the price of the precious metal will fall. This is because rising rates are a sign of a healthy economy, and gold is used as a hedge against recession and uncertainty.

But today gold price has its eye on the bigger picture – and investors are turning to the yellow metal in anticipation of that great destroyer of value; inflation.

Even with two rate rises in the last four months, the Fed's real rate of interest has in fact declined, dropping from -1.5% to -1.7% when you factor in rising inflation, said Adrian Ash, head of research for BullionVault, the UK-based online trading platform.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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