Gold Prices Spike Due to Interest Rate Hike

Gold experienced a jump in value on March 16 after the Federal Reserve announced a 25 basis point increase to its benchmark interest rate. The London fix price experienced a one-day jump of 2.55 percent from $1,198.80 (PM price) to $1,229.35 (PM price). This is a positive change in direction from a decline in prices that began on March 1. The rate hike of 25 basis points from 0.75 to 1 percent was seen by some as modest, but it clearly had a more than modest impact on the price of gold.

We’ve covered gold price spikes in the past, but this one is unique because of its connection to the Federal Reserve’s interest rate hike. Increases in interest rates are rarely a positive sign for gold prices due to opportunity costs associated with holding non-yielding bullion and gold’s tie to fluctuations in the dollar. Given the unique circumstances, it is likely that other factors impacting the price of gold beyond the most recent interest rate increase are also at play.

With the market anticipating two more hikes in the interest rate this year, we’ll be watching closely to see its impact on the gold market. If you want to be alerted to price swings during the Federal Reserve’s next announcement, don’t forget that you can use our mobile app to receive alerts via email or push notifications on your phone.

There is such a thing as ‘Too Much Gold’

Gold is more than just an economic store of value – it is also a critical component in millions of consumer electronic devices. Because of the metal's electrical conductivity, ductility, resistance to corrosion, and lack of toxicity, it’s applied as a thin layer on electrical contacts to guarantee reliable and long lasting functionality.
But even though gold is the go-to material for creating electronics of the highest quality, that old adage "too much of a good thing" still holds true. This was famously demonstrated by the Titan supercomputer just a few years ago.
Developed and built by Cray Inc., the Titan made a splash in 2011 when it was officially recognized as the fastest supercomputer in the world with the capability of performing 17.59 quadrillion operations per second. The Oak Ridge National Laboratory (ORNL) planned to use the Titan’s incredible power to perform calculations for materials research, nuclear energy research, climate modeling, and other analysis techniques. But before officially putting the supercomputer to work, ORNL ran a series of acceptance tests – which uncovered a design flaw that kept the Titan from meeting stability requirements. ORNL discovered that the Titan’s stability issues caused by electrical connector pins were soldered using too much gold.

In microelectronic applications (like supercomputer connector pins), gold must be applied carefully to prevent the development of intermetallics. The design for the Titan’s connector pins used a tin-based solder. The excess gold combined with the tin to form a brittle intermetallic that affected the communication between the Titan’s GPUs and main processors.

Each connector in the Titan had about 100 pins made with the faulty solder mixture. To fix the problem, Cray had to replace all 20,000 connectors. Most likely, they were able to recoup the cost by sending the gold-containing pins to a precious metal refiner, like MGS.

Germany Completes Repatriation of Gold Reserves Ahead of Schedule

Back in 2013, Germany announced that it would transfer a large amount of its gold reserves from foreign banks back to its native soil. Originally, the German government expected to complete the entire transfer of 674 tons of gold by 2020. However, Carl-Ludwig Thiele, board member of Germany’s central bank (Deutsche Bundesbank) confirmed just last month that the transfers will be completed in 2017 – 3 years ahead of schedule.
For security reasons, the gold was transferred in batches over the past four years. The largest “withdrawal” on Germany’s list was a total of 300 tons of bullion from the Federal Reserve here in New York. Of that, Bundesbank claims that the transfer of the remaining 111 tons was completed in September 2016. A transfer of 105 tons from the Banque de France was also completed in 2016. A final transfer 91 tons from France later this year will complete Germany’s repatriation efforts.
Once concluded, Bundesbank will hold half of Germany’s gold reserves, with the rest remaining in the vaults of the Federal Reserve and the Bank of England – where it can be quickly exchanged for US dollars or UK pounds, if economically necessary.