Gold prices could be under some pressure in the first half of 2015 as the market anticipates the Federal Reserve raising interest rates, but once the Fed moves, the yellow metal may be able to end the year on firmer footing.
Market watchers said once the Fed starts the cycle of interest rate increases, the market can focus on how high the rates may rise, which will be less of a weight since the expectation is that rates won’t rise very much. Higher interest rates are bearish for gold because they give investors a reason to move money into investment vehicles that produce a yield. Gold has no yield.
The Fed official exited its asset-purchase program in October and is on the path of monetary-policy normalization after using extraordinary measures to support the U.S. economy in the aftermath of the 2007-08 credit crisis. Based on slowly improving economic data, such as an unemployment rate of under 6% and third-quarter gross domestic product of 3.9%, economists expect the Fed will be in a position to start to raise rates by the second half of 2015.
“Looming Federal Reserve interest rate increases in the second half of 2015 and the stronger U.S. dollar will keep pressure on gold prices through the year. The gold market could see rallies if demand improves for physical gold, but weaker growth in much of the world will temper such prospects,” said Rob Haworth, senior investment strategist, U.S. Bank Wealth Management.