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Updated 20:24 08/05/21

Gold up 1% as Fed raises rate by 0.25%

By Peter Walden, News Editor

17 Dec 2015

After months of deliberation the Federal Reserve increased interest rates by 0.25%. This is the first increase in 7 years and could potentially send shockwaves across the financial markets.

Investors worry the rate rise will boost the value of U.S. dollar and increase the borrowing costs for countries with debt denominated in the U.S. dollars. Since the crash of 2008 banks have taken money created by quantitative easing and lent it to emerging market economies and captured the spread.

The rate rise will also increase the cost of borrowing for U.S consumers and could potentially choke of the recovery. With non-governmental data pointing to a slowdown in the economy the Fed could be raising rates into the face of a new recession?

The rate rise was no surprise after months of so called forward guidance and already been priced into the gold price. Typically the gold price declines when rates rise as gold becomes less attractive when compared to interest bearing assets.

Despite the gold price rising 1% yesterday the gold price has declined 10% year to date.

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