2017: Gold and Federal Reserve Action


Various analysts have reported that gold is expected to increase anywhere from 10-20% in 2017, if the Fed does not act decisively to increase interest rates. This is especially true if real (as opposed to nominal) interest rates remain unchanged.

Concern over world economic success has sent gold higher, along with the Brexit crisis. These factors might normally be addressed by decreasing interest rates, but a challenge to this Keynesian approach is that expectations have gone full circle. This means that investors are actually growing fearful of the long-term prospects of the US economy. It is therefore essential that such measures are not taken. If the Fed doe snot have faith in markets, buyers and sellers of gold have much thinking to do.

Be Bullish on the US, at Least For Now

It is unlikely that the US economy will face short-term challenges, and in-fact, much of the econo-apocolyptic hubris around the US election is just that. With that in mind, over-time, central banks will likely look to centralize gold holdings. Here you can look at futures markets, long-term bull ETFs, and industry consensus. In the latter respect, the LBMA consensus on gold was just shy of $1,350 in Q3 2017.

The Fed’s next meeting is in the beginning of November, followed by the middle of December. Some officials have already expressed support for increases in the overnight rate, and we look forward to learning more.

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