Know how Fed decision will affect gold prices

Zee Media Bureau

Investors have been cutting gold positions in anticipation of a first interest rate increase in nearly a decade in US and the metal has fallen about 10 percent so far this year. Higher rates could dent demand for the non-interest paying asset, while also boosting the dollar.

If the Fed`s economic forecasts on Wednesday (December 16) point to relatively rapid increases, the dollar could rise further. A stronger dollar makes greenback-denominated gold dearer for holders of other currencies. That tends to dent demand and, in turn, pull prices lower.

The Fed is expected to issue a post-meeting statement at 1900 GMT on Wednesday.

BofA Merrill Lynch has said it expected the gold price to slide to USD 950 early in 2016 due to the upcoming US rate rise, joining a chorus of other brokerages, including Goldman Sachs, predicting a drop to, or below, USD 1,000. 

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