InvestorQ : I have read that monetary policy of RBI and Fed also impacts gold prices. How is that so?
swati Bakhda made post

I have read that monetary policy of RBI and Fed also impacts gold prices. How is that so?

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3 years ago
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Central Bank monetary policy has a strong impact on gold prices. We are of course talking about the major central banks like the US Fed, the ECB and the Bank of Japan. RBI policy is not a major impact creator on gold. When you invest in gold, you are actually foregoing the interest that you would have earned on buying a debt instrument. But if the rates go very low then the opportunity cost is almost non-existent and that will lead to a spurt in the demand for gold. We saw gold prices going up sharply in the aftermath of the sub-prime crisis in 2008 to touch a level of $1900/oz in 2011 when the Fed and other central banks were holding on to near-zero rates of interest. However, post 2013 as the Fed has indicated at a hawkish monetary policy, the price of gold has retreated to lower levels.

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