Rate unchanged or rate increase – the gold rally is coming
Not surprisingly, the Fed kept interest rates unchanged and there will be at least another month and half of a zero interest rates. However, Yellen and company have softened their language on economic headwinds, indicating that there may finally be a bump in December.
While theoretically gold and interest rates are inversely correlated, this link can be exaggerated at times. If the economy is indeed performing better than expected and inflation picks up, there will actually be an increased demand for gold as an inflation hedge.
Furthermore, it is no secret that we believe the S&P 500 is overbought. A tightening of monetary policy will likely trigger a sell-off in equities, also increasing the demand for gold as a safe haven.
Regardless if rates stay low (good for gold) or finally increase (in this case, also good for gold), traders agree that the inevitable bull is coming, holding more long positions than short for the first time in two years.