Markets have been struggling every since the Federal Reserve’s decision not to raise the Federal funds interest rate, but there has been one winner: gold.
According to analysts at RBC Capital Markets, the recent jump in gold prices has been in part due to the decision by the FOMC not to raise rates.
The analysts compared the market expectations of a rate, derived from a formula using the 30-day Fed fund futures, and the price of gold. They found that as a hike became more unlikely, the higher gold prices became and vice versa.
While the two measures have been trending down, you can see the brief periods when they move in opposite directions.
Here’s what they wrote in a note to clients Wednesday:
“Over the past month, we have seen a modest rebound in gold price from below $US1,100/oz in August back towards the $US1,150/oz level, particularly around the release of the July Fed minutes in mid-August, which contained a more dovish outlook, and after the September Fed meeting last week where rates were left unchanged. The gold price has stayed fairly supported at this level as a more dovish sentiment by the Fed has curtailed expectations of a hike before the end of the year, and now sits at 42% versus 60% at the beginning of September.”
The positives may not last long, however, as the RBC analysts still expect the Fed to raise rates in December, thereby dropping gold back to around $US1,130 per ounce.