Nov 2, 20222 min read

What is FOMC and how does it affect your trades?

What is FOMC? There are eight planned meetings each year of the FOMC. During these gatherings, the Committee discusses the state of the economy and the financial markets, settles on the stance of monetary policy, and evaluates the threats to its long-term objectives of price stability and sustained economic development.

Simple explanation: FOMC decides on the interest rate of the USD.

How to trade during FOMC on Gold?

The price of gold and interest rates are linked.

Gold and interest rates usually go together severely. Gold prices typically go up when interest rates go down and down when they go up. This is not always the case, though. This is because interest rates increase when stocks, government bonds, and other investments become more appealing to investors. Lower interest rates make these other assets less attractive, which leads investors to put their money into gold, which drives up demand and the price. Because of this, gold is seen as a way to save money when money is tight. What happens when the rates of interest go up?

As economic confidence grows, consumers and businesses that have more money to spend tend to borrow more. When this happens, the interest rates tend to go up. When borrowing costs go up, central banks and other financial institutions can expect to get more money back from their loans.

When things are going well, people are less likely to want to invest in a haven. Interest rates also help the domestic currency, so the short-term gold price should decrease. Increasing inflation can also be stopped by raising interest rates. If prices are going up quickly, central banks raise interest rates to get people to save money and spend less. This should stop inflation from getting out of hand. When rates go down, what happens?

Rates go down or stay at the base rate of 0% when people lose faith in the economy and growth stops. During an economic slowdown, things like living costs, wage growth, and employment tend to go down, and the country's currency loses value. During these times, investors look to gold as a "haven" to protect their money, and the gold price will go up because of trades in gold futures.

Since gold doesn't produce an annual yield, a low-interest rate means other investments don't. This makes gold even more attractive. Does the Fed rate increase affect gold?

Interest rates are different in every country, and those differences affect their economies and the price of gold there. Rates in the US have a more significant effect than in most other places, and since most gold is traded in US Dollars, its rates significantly impact the price of gold. So, when the US Federal Reserve, also known as the Fed, raises interest rates, it can significantly impact the price of gold. When prices go up, gold tends to go down, while prices stay high when prices go down.

The momentum during FOMC and good brokers is a must: