Gold struggles ahead of Fed meet on US rate hike views

As the Federal Reserve nears its first rate rise since the crisis some of these high-yield bonds have lost their lustre, with the free-falling oil price causing particular pain for those issued by energy companies.

“The US economy should cope well with a less expansionary approach to monetary policy, as, unlike in the last economic cycle, consumers are well prepared for rising interest rates thanks to much lower debt”, said Jorg Kramer, chief economist at Commerzbank. The lack of liquidity in some areas of the bond market as ultralow interest rates atrophied trading interest is the reason bond funds like Lucidus are running into trouble. He’s “overweight” 30- year USA bonds and “underweight” five-year notes.

The Fed’s meetings in 2015 have been the core determinant of gold prices as well as silver.

The summer came and went, and still no rate hike. The iShares iBoxx High Yield Corporate bond exchange-traded fund fell 2% Friday and is not at its lowest level since 2009. The bond market is looking for fewer rate hikes in 2016 than Fed officials are. “And as long as that’s the case, long-term interest rates will stay down”. Since then, the cost of borrowing to purchase a vehicle has been very low and has contributed to a surge in auto sales. Behind all too many of market moves in government debt of late has been a report from one of the major credit ratings agencies.

“Long-term rates are determined by the marketplace every day, by traders buying and selling bonds”, Walters said. It means lenders earn more interest, because borrowers are paying it over longer periods.

So what happens when rates rise? A mid-August Bankrate survey of economists found two-thirds of respondents anticipated a September rate hike, and the aforementioned WSJ poll had even more predicting an increase.

That’s about $700 more a year, and over the life of a 30-year loan that seemingly small difference amounts to an additional transfer of about $21,000 from the homeowner to the lender. We’ve essentially been at zero percent short-term interest rates for seven or eight years.

“The real estate economy is more sensitive to interest rates than most of the economy”, Wake said.

Spot yuan fell to as low as 6.4665 to the dollar, its lowest since mid-2011, taking its losses far this year to about 4 percent.

The prospect of higher borrowing costs has helped erase $2.5 trillion from global equities since 1 December, and stock swings have widened. “The shocks to the system have more than offset the trickle of good news”. This is also likely to put pressure on the current account deficit.

“The choppiness in the market is indicative that we are close to the FOMC meeting and that is going to be the prime determinant of where rates go from here”, said Tom Simons, money market strategist at Jefferies & Co in NY. Possibly. But keep in mind the Fed hasn’t raised its benchmark rate in almost a decade.

Chatter is growing that the Fed will soon have to start cutting rates again. The cumulative impact of possible subsequent rate hikes is a different story.