How the Fed affects gold
Interest rates are the single biggest force on gold. The Fed sets them.
The Federal Reserve is the US central bank. Eight times a year it decides on interest rates, and those decisions spread across the world. Few things move gold more.
Two reasons rates matter
- Gold pays no interest. Higher rates make bonds and savings pay more, so holding gold costs you more in lost income.
- Higher US rates tend to strengthen the dollar. Gold is priced in dollars, so a stronger dollar makes it more expensive for everyone else.
Words often beat decisions
The decision itself is usually well known in advance. The surprise tends to be in the statement, the forecasts and the chair's press conference. Traders listen for hints about the next meeting. "Hawkish" means leaning towards higher rates, which usually hurts gold. "Dovish" means leaning towards lower rates, which usually helps it.