Fed comment inflicts further damage on the gold price
Duncan Richardson, News Editor
5 Nov 2015, 2:19 p.m.
The gold price has fallen to a near five year low of £720.00 per ounce, as investors reduced their Comex positions on fears the Fed will raise interest rates in December. The gold price has now dropped over £40 per ounce since Janet Yellen first left the door open for a rate rise before the end of 2015 during last week’s FMOC meeting.
Yesterday Yellen backed up her previous comments whilst testifying before the House Financial Services Committee. She reiterated that a rate rise is a real possibility. If the Fed does rates it will be the first time in seven years.
Trillions of dollars’ worth of derivatives are linked to interest rates and many worry a rate rise may spark a derivative explosion. According to the Bank of International Settlements, the total notional value of derivatives globally stands at 710 trillion dollars (710,000,000,000,000.) Other estimates put the figure at over 1 quadrillion.
Higher rates boost the value of the U.S. dollar and dents golds appeal as gold does not produce a yield. Gold is currently trading at £720.69 per ounce, whilst silver has broken below £10 and trades at £9.77 per ounce.