In setting the foundation for the month of August, it’s important to remind the reader once more of the vital link which exists between US interest rates and the price of Gold. One should therefore, from an investment perspective, always keep the keenest of eyes on US inflation and more importantly still, the US Reserve’s plans on dealing with its fluctuations. The biggest red flag currently waving on its front, is that of Covid 19’s Delta-variant, which continues to spread rapidly across the US; threatening to tear its economy apart anew. Fortunately, its Federal Reserve backs its economy to navigate through this outbreak with greater delicacy and skill than it did during Covid’s initial eruption in 2020. Should it manage to do so, investors can expect the price of Gold to remain fairly stable throughout the second quarter of 2021.
One of the measures used by the Federal Reserve, to rebuild its economy, was the introduction of ‘large scale asset purchasers.’ Under this process, as has happened over the course of the last eighteen months, the Federal Reserve enters the market to buy coveted securities, which commonly takes the form of mortgage-backed collateral and treasuries. By doing so, it injects capital and liquidity into their market; ‘boosting’ it altogether. This could, if not managed correctly, lead to a rise in inflation beyond an acceptable curve. Under such ill-favoured conditions, higher interest rates could well be imposed, which would undoubtedly lead to a lower price of Gold.
Despite this lingering threat, there appears to be stability in the market. Evidence thereof manifested itself last week through the words of Jerome Powell (the chair of the Federal Reserve), when he said that a rise in interest rates is currently not even on the Central Bank’s radar. Thereby offering further stability to the Gold market and its price at large.
