Futures, ETFs, and other paper transactions are the main instruments in directing the market and trading gold, so investment managers are particularly concerned about the potential impact of higher interest rates on the yellow metal, says Ole Hansen, head of the commodity sector at Saxo Bank, in anticipation of today’s decision by the U.S. central bank, the Federal Reserve, on benchmark interest rates.
– In the case of a decision to raise rates, but in a tone that still indicates a looser monetary policy considering all the events in the rest of the world, this could reduce the uncertainty that has pushed gold down over the past few years. At the same time, the physical gold market is growing, with significant demand, as, for example, gold imports to India increased by as much as 140 percent in August compared to the previous year. So, there is currently a ‘battle’ between these two markets, and the Fed’s decision is particularly important to them – explains Hansen.
On the other hand, the Fed’s decision could help oil producers within OPEC, while hindering American shale producers.
– If the Fed decides to raise rates, along with a ‘hawkish’ statement about a more restrictive policy, this will mean further recovery of the dollar and pressure on commodities in general, especially oil, but it also means problems for American oil producers who are in serious debt and depend on access to money from banks. With rising interest rates, the cost of capital will also increase, thus affecting further slowdown in oil extraction in the U.S. The positive aspect is, of course, that this would mean faster consolidation among shale producers and reduce the excessive supply in the market that has been prevailing for a long time, thus stabilizing oil prices – describes both sides of the situation an analyst from the Danish investment bank.
