Gold Price Falls After Central Bank’s Surprise Move
London (July 15) The gold price continued to fall overnight after the Bank of England, contrary to expectations, kept interest rates unchanged at yesterday’s meeting.
The market had earlier priced in an over 80 percent chance of a 25-basis point cut in the July meeting, though some had reckoned that the BoE may prefer to wait till August when more data will be available to assess the impact from the Brexit decision.
Gold prices have rallied more than 25% since the beginning of 2016, but is the rally now over, or would it be foolish not to buy gold?
Brexit isn't the only market upset to affect the gold price, with interest rates and currency changes impacting demand
To help answer that question let’s take a look at what has driven the gold price higher in 2016.
One of the key drivers continues to be interest rates.
Demand for gold typically climbs when interest rates are low. Although gold has no yield, it tends to offer investors a better place to park their money when returns from bonds and cash savings are poor – as they are when rates are low.
At the end of last year, it seemed the tide was turning, with the US Federal Reserve increasing rates for the first time in seven years. But the Fed folded on a rate rise in June and expectations for further hikes this year have receded.
Meanwhile, the Bank of England this week dashed expectations that it would slash rates below 0.5pc over fears Brexit could plunge the economy into recession.