Gold: Risk from Diminished Rate Expectations

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Gold, silver and platinum prices have been rebounding over the past six months for what appears to be one major reason: investors losing faith in the Federal Reserve (Fed) to continue raising interest rates in the current tightening cycle, as reflected in Fed Funds Futures.  For example, in mid-March, Fed Funds Futures priced the Fed’s target rate to be most likely in the 1.75% – 2.00% range in two years.  But by the end of August, those expectations had cratered, and the market now anticipates the Fed target rate to be most likely below 1.5% in two years (Figure 1).

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