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- Author of the entry: Mennica Skarbowa
- Date of entry:
Gold has once again surprised analysts. An extreme example of the unexpected behavior of gold prices is often cited today as the case of falling prices after Donald Trump was elected US president. According to the prevailing forecasts, if Trump won, the price of gold was expected to soar to USD 1,400 per ounce, but after the US election results were announced, the precious metal lost nearly 10% within a month.
Adding to this market puzzle, which so strongly undermines faith in any forecasts, is yesterday's decision by the Fed to raise interest rates and the accompanying rise in gold prices.
Looking at the matter logically, when the US Federal Reserve raises interest rates, gold should lose value. The higher the interest rates, the more attractive other forms of capital investment become. After all, gold does not bear interest and shines brightest when interest rates are low.
Meanwhile, yesterday, after the announcement of another 0.25 percentage point increase, gold prices went up. The markets moved in exactly the opposite direction to what classical economics would suggest, and those who held off on buying gold, hoping for a logical correction, are now lagging far behind.
But perhaps it is worth looking at recent history? After the interest rate hike in December 2015, gold gained 18% in the following three months. After last December's hike, the following quarter saw an 8% increase in gold prices. After yesterday's increase, we are already seeing a jump of more than 2 percent, and this may only be the beginning.
As you can see, investors have been burned by logical reactions and are now guided by something completely different. A hunch, their heart, blind luck, or perhaps just contrariness?
Adding to this market puzzle, which so strongly undermines faith in any forecasts, is yesterday's decision by the Fed to raise interest rates and the accompanying rise in gold prices.
Looking at the matter logically, when the US Federal Reserve raises interest rates, gold should lose value. The higher the interest rates, the more attractive other forms of capital investment become. After all, gold does not bear interest and shines brightest when interest rates are low.
Meanwhile, yesterday, after the announcement of another 0.25 percentage point increase, gold prices went up. The markets moved in exactly the opposite direction to what classical economics would suggest, and those who held off on buying gold, hoping for a logical correction, are now lagging far behind.
But perhaps it is worth looking at recent history? After the interest rate hike in December 2015, gold gained 18% in the following three months. After last December's hike, the following quarter saw an 8% increase in gold prices. After yesterday's increase, we are already seeing a jump of more than 2 percent, and this may only be the beginning.
As you can see, investors have been burned by logical reactions and are now guided by something completely different. A hunch, their heart, blind luck, or perhaps just contrariness?
