Question

When interest rate increases by FED, then the dollar appreciates. Discuss the previous statement. AND what is its impact on Gold, Bonds prices?

Answer 1

When the Federal Reserve increases the interest rate, the value of a dollar increases because the currency exchange rate of other countries gets weaker. The high interest rate would mean greater foreign investment which increases the valuation and demand for the Dollar in foreign countries.

With an increased interest rate, gold prices will tend to go down while , bonds will be valued at higher price because when the interest rate is high, foreign investors are more likely to be allured towards bonds and such investmens, while gold would be neglected, and if the interest rate goes down, the opposite happens, which pushes foreign investors to turn their investment focus towards gold accordingly.

Hence, will an increased interest rate, gold prices would go down while bonds prices would go up.