Gold investors are keenly eyeing the highly anticipated meeting of the Federal Open Market Committee (or FOMC) on December 13–14, 2016, and the committee’s probable hike in interest rates.
Gold is highly sensitive to rising rates, which increase the cost of holding non-yielding assets such as gold and boost the US dollar, from which gold gets its price. Since gold pays no interest, rising returns from US bonds and other markets is seen as negative for the precious metal.
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While a rate hike would be seen as a negative for gold, investors should note that since the first rate hike of the current tightening cycle in December 2015, gold has risen more than 20%. The Fed’s upcoming potential rate hike has been anticipated by market participants for some time now. Most of the hike odds in December have already been priced in to gold.
Following Donald Trump’s presidential victory, the US dollar rallied, and expectations of a Fed rate hike also gained strength, leading to further falls in gold. Gold prices have fallen 9% since Trump’s win.
A rising dollar and rising yields don’t seem to be playing out well for precious metals (GDX) (SLV). This weakness will likely also be apparent in miners such as Eldorado Gold (EGO), Kinross Gold (KGC), Alacer Gold (ASR), and Silver Wheaton (SLW).