InvestorQ : Is it true that central bank monetary policy also impacts the price of gold? What is the relationship?
Dia Deshpande made post

Is it true that central bank monetary policy also impacts the price of gold? What is the relationship?

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Ria Jain answered.
2 years ago
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Monetary policy broadly refers to the central bank actions on interest rates and liquidity. Most central banks the world over give signals of the direction of rates and liquidity by tweaking their benchmark rates. 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, Bank of England, People’s Bank of China and the Bank of Japan. 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 note on the monetary policy, the price of gold has retreated to lower levels.

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