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Rate hike not necessarily bad for gold, says Council

|By Arabian Post Staff| Gold prices were trading higher in afternoon dealings and holding on to early gains in the aftermath of the first interest rate increase from the U.S. Federal Reserve since 2006.

The gains were explained as a move by traders to get a jump on the possibility of Fed rate hike, on the firm belief that the gold market would exhibit a “sell the rumor, buy the fact” scenario.

World Gold Council said in its outlook for 2016 that while the US dollar price is one driver of gold demand it is not always the most relevant factor for most investors. In fact, the Council said its own research showed that higher interest rates are not necessarily bad for gold.

This is because, in the first place, physical demand for gold is truly global – more than 90% comes from outside the US, primarily the Asian economies – particularly China and India.

In these economies local price matters most – and in 2015 the non US dollar gold price has held up, even inching slightly higher. The Council said if there is a temporary downward impact of the price of gold due to a US rate rise then this could well lead to increased demand in price sensitive markets such as India and China.

We have already seen evidence in China via developments with the Shanghai Gold Exchange wanting to have gold traded in Yuan and in India, the Indian gold trade expressing an intent to establish a gold exchange,” it said.