There’s a lot to read about the Federal Reserve’s decision to hold its key interest rate unchanged at this time, including the Fed Chairwoman Janet Yellen’s statement. But one thing seems fairly certain: the Federal Reserve will only raise its interest rate if the economy does well enough to justify the change.
Even if that sounds like a long shot, it’s exactly what happened in 2020 when the Federal Reserve kept its main interest rate elevated for an extended period of time in anticipation of a recession. In fact, some economists who had been predicting that recession said the Federal Reserve’s actions would actually help the economy because they would keep financial markets busy. And when the credit crunch hit and the recession hit, it took a lot of the stress off of the economy and the Federal Reserve was forced to pull its rate back down.
As with any other thing that is done for the purpose of keeping interest rates elevated and supported, the Federal Reserve has to make a judgment call based on whether or not the economy will be able to support the new interest rate. If the economy can’t afford it, then it makes no sense to raise the rate.
This applies especially to the central bank of a nation. The United States does not have a gold standard, but is dependent on its currency for its economic lifeblood. If the value of the dollar declines due to a weak economy, that country’s central bank cannot afford to raise its interest rate, so it does not.
The fact that many nations around the world use the dollar as their currency makes their economic circumstances all the more complicated. One country may have a very strong economy and a thriving currency. But in order for its economy to grow, there needs to be a strong economy in other countries and other currencies to complement it.
Central banks don’t really have a lot of leeway in how far they can push their interest rates. They do what’s best for their country’s economy and their banks. It’s a matter of economics. The United States has one of the most stable economies in the developed world, which means it has a low interest rate to start with.
But if you’re looking for a way to make money trading in the gold market right now, you’ll want to be aware of the Federal Reserve’s upcoming announcement. After all, this isn’t your typical month-end-of-year release where all the news is done, all the analysts have been reading all the economic indicators, and you’ve already heard all the fed testimony in the market.
So the big question is, will gold prices rebound from the 50 day sma at the Fed’s September meeting? And if it does, how high will they go before they come back down again? Will the dollar continue to suffer for another month?
There’s little evidence to suggest that the Federal Reserve will be raising rates any time soon, but given what we’ve already seen, it’s always a good idea to be prepared when it comes to the gold market. and the Fed’s decisions.
This is why a smart investor keeps a close eye on gold prices and the gold market. If it doesn’t recover from the 50 so that it hit this week, expect it to come down again. It’s only a matter of time.
The big question is, what will the next big question look like? Will it be, “Will we see the dollar fall further?”