AvaTrade - Analytics

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Gold- How bad interest rate rise could be for gold

Physical Demand
Physical demand for gold has always been an important part of the equation especially, when you look at China and India- the two nations where consumers are mad about the shinning metal. However, similar interest in the Western world remained very muted, but now the game can change rapidly. Apple’s iWatch has a strong potential to increase the demand for the physical commodity in the coming future, which is another hope for the bulls that it may perhaps lift the price to $1600 in a couple of years.
Taper vs Interest rate
The major denominator remains the strength of the Green back for gold, which has shaved off big chunk of profit in trader’s account especially, if you compare this before the taper tantrum. So the question which stands for many investors is, if increase in the interest rate could have a similar impact on the gold price, as it had during the tapering. Well, we are optimistic for gold in the longer term and we do not support the view that gold price can touch 600 dollars, which is the equivalent of taper impact according to our model. We believe that if gold breaks 1100, the major support could be near the 800, which in our view is the absolute low for gold.
In the coming week, Fed meeting will be the most important element for gold traders and if the Fed are bullish, this could hurt the gold price further.
Volatility 
However, Greece, Ukraine and the upcoming Brexit are the main events which will keep the hopes alive for gold traders.


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