Gold and silver have had a pretty tumultuous year so far. Although the prices of the commodities are fluctuating more toward the upward direction at the moment, I believe that this path will change by the end of the year. More importantly, there's going to be plenty of opportunity for profit trading binary options when this happens. With that said, today we're going to talk about why I believe that the values of these commodities are likely to decline by the end of the year and what you can do to take advantage of the trends. So, let's get right to it…
The Federal Reserve Interest Rate Is Likely To Increase Soon
The Federal Reserve interest rate has been a major topic of discussion for investors for quite some time now. To give you a bit of back story, the Federal Reserve needed to stimulate the economy in one way or another during the depths of the 2008 and 2009 worldwide financial crisis. To do so, they reduced their interest rate. This brought interest rates on loans around the country down; making it so that consumers spent less money to borrow money and had more money to spend that would cause economic growth. When the Fed made the decision to take this action, everyone knew that it wouldn't last forever; and here we are nearly 7 years later with the low interest rate that has lasted far longer than anyone could have imagined.
[Image Courtesy of The Sleuth Journal]
In late 2014, the Federal Reserve started talking about increasing interest rates; something that it planned on doing by the end of 2015. However, the year has been less productive than anyone could have imagined. So, the Fed has been hesitant to make any changes. While there are signs that the economy is continually strengthening, there are also valid arguments for keeping rates low. So, the Fed has been caught in between a rock and a hard place; looking for a solid statistic that gives them the ability to raise rates.
The Fed Gets The Ammunition It Needs
Recently, the new homes sales report surfaced for the month of August; and that report was far better than anyone expected. In the month, 552,000 new single family homes were sold. That's more than we've seen in any month since February of 2008 and represents an increase in sales over July of nearly 6%. This is a strong sign for a strong economy as consumers that feel as though the economy is unstable aren't willing to make a big decision like purchasing a home. When consumers feel comfortable enough with their economy to purchase homes, they are also likely to spend more elsewhere. So, given the new data, it seems as though the Federal Reserve has the ammunition it needs to increase interest rates; which will likely happen either in October or December.
How This Affects Commodities
Commodities are a safe haven investment; and in current market conditions, they're starting to get hot. However, low interest rates are also helping with that heat. That's because treasury bonds, another safe have investment, don't offer a decent return in times of low interest rates. However, when interest rates are increased, this will change. Treasury bonds will offer higher rates of return and prove to be a great place for safe haven investors to look; ultimately taking demand away from gold and silver and causing declines.
How To Take Advantage Of The Trends
Since gold and silver are likely to decline when the Fed increases interest rates, it will open a perfect opportunity for gains for binary options traders. Simply wait for interest rates to be increased. When this happens, start looking for trends that suggest declines in the gold and silver arenas and purchase put options to turn those trends into profits! Keep informed and check out the latest financial news.