GOLD REACTS TO FED RATE HIKES

Recently you might have heard a lot about the United States Federal Reserve Service in the news and how they intend to increase what is known as the federal interest rates. There are a number of things to keep in mind with regard to the interest rates and how they can potentially impact precious metals.

First of all, contrary to popular belief the federal government actually convenes in order to consider the status of the interest rates about once a month, so the change is not coming out of the blue. Since the fact is that the federal rates are constantly being controlled and adjusted. However, this time this rate is actually going to see a considerable rise to itself, compared to what it has been for a very long time, which has been very much close to 0%. But now they have decided to increase this rate. Of course, you need to know that this rate shall not directly affect the consumers of the economy, rather the big banks that borrow from the federal reserve and also deposit their money to earn ROI for their excess assets.

As the fed hikes rate the big banks that lend money to loan banks will ultimately have to adjust their own rates. Of course, all the way down the economic chain, the end users and consumers of the loan banks, will have to get loans and mortgages, especially mortgages for houses, at a higher rate, since the feds will have had increased the federal rate in order to potentially combat and control the inflation rate fed. Now you need to keep this in mind that the increase for the loans and mortgages that people actually get from banks will not increase accordingly overnight, however it might take some time for the actual bank loan rates to increase as well. What does this mean for markets such as gold and silver? The fact is that it could go different ways. The banks offering higher interests for their loans also means that they now have the ability to offer a higher rate for ROI for people who deposit and invest their money since the banks themselves can get a higher ROI from the bigger banks and ultimately from the federal reserve.

So it could go both ways, either assuage people to put more of their money in the bank or the more likely scenario is that people will actually run to defend their assets from the external manipulation of the government and actually change them into tangible assets that can be safe in the face of market change, assets such as various precious metals, like gold, silver, or other metals.