Gold prices to rebound despite higher US interest rates

US monetary policy is only one of many drivers of the gold price. In particular, more than 40% of gold demand last year came from Indian and Chinese consumers - for whom the nuances of US monetary policy are practically irrelevant.

Demand from these key markets to pick up again this year as local headwinds fade, regardless of what happens at the Fed. Nor is the prospect of higher US bond yields likely to choke off demand for gold from central banks in emerging economies (especially as bond prices would actually be falling as yields rise). 

Capital Economics notes in a report:

• The conventional view is that the price of gold will inevitably suffer large and sustained falls when the Fed begins to return US interest rates towards more normal levels. 
  
  
• But while we would expect the initial reaction to the approach of the first hike to be negative, the turn in the US monetary policy cycle is unlikely to be the decisive factor for gold's medium-term prospects that many assume.
  
  
• Overall, we remain comfortable with our year-end forecast of $1,400 per ounce for the gold price, compared to the current level of around $1,150, despite the risk of some further near-term weakness.