Introduction to Gold Prices
The price of gold is driven by multiple factors, many of which have been prevalent in recent years. With inflation problematic, many investors flocked to gold for the protection the precious metal offers during such economic periods. Thanks to a consistent value during these times, many investors choose to diversify their portfolio by adding a portion of gold to offset losses felt elsewhere. That, in turn, has largely contributed to a remarkable price surge, with gold breaking through numerous records in the last 18 months as it closes in on the $4,000 per ounce mark.
Understanding the Impact of the Federal Reserve Meeting
This week marks another chance for the price of gold to change as the Federal Reserve meets again to determine monetary policy and the future of interest rate cuts. The potential for the central bank to impact gold prices, specifically, however, may not be as clear as investors and prospective investors think at first glance. Historically, lower interest rates result in increased demand for gold, causing the price of the metal to rise. However, this isn’t always the case, as gold largely surged in recent years even as interest rates rose, at one point, to their highest level in 22 years.
Factors Affecting Gold Prices
The price of gold on July 28, ahead of the Fed’s two-day meeting, is $3,332.46 per ounce. And it’s likely to remain around that price by the week’s end, too. That’s because a rate cut is highly unlikely to be issued this week. Other factors could move the price of gold upward or downward, both this week and in the remaining weeks of the summer. These factors include:
- Comments made by the Fed post-meeting: A formal rate cut doesn’t need to be issued for gold prices to change, which they may, should the central bank hint at the end of its extended rate pause in the press conference following the meeting.
- Inflation concerns: Inflation went up in May and again in June. Should the August report (for July) show that trend continuing, gold prices are likely to rise once again, as higher inflation typically causes the price of the metal to tick up.
- Geopolitical concerns: While geopolitical concerns remain elevated, there has been little development to shake things up in a positive or negative direction as of late. Should movement there change, however, especially if tensions rise, the price of gold could be driven to new highs, even if inflation subsides and rate cuts are ultimately issued again around the same time.
Investing in Gold
With much to consider, then, and with gold technically priced lower now than it was a few weeks ago, prospective investors and current ones not yet invested to the 10% recommended portfolio maximum may want to get started now. Waiting could result in getting priced out of the gold market and losing the protections it can offer altogether. Investing in gold can be a strategic move, especially in today’s economy.
Conclusion
A Federal Reserve meeting isn’t just important for interest rates and borrowers. Changes and comments made there can also impact investors, particularly those considering gold (or adding more to their portfolio). And while rate cuts look unlikely for this week, it doesn’t mean that the gold climate will stagnate either. Consider using this time strategically, then, as today’s "expensive" gold price could very easily become tomorrow’s "cheap" price point. As the price of gold continues to fluctuate, it’s essential for investors to stay informed and make informed decisions about their portfolios.
