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How Fed Members' Recent Comments Affect Precious Metals

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How Fed Members' Recent Comments Affect Precious Metals PART 1 OF 6

Federal Reserve Members Comment on Inflation, Interest Rates

Fed officials commented

The overall market sentiment and hints by several Federal Reserve officials during the past few days have been the most important factors playing on precious metals. Also, the fluctuations in the US dollar due to the Fed members’ statements also impacted precious metals. The heads of five regional US Federal Reserve banks were scheduled to speak in the past week.

The chart below shows the upward shift in gold (IAU) and silver (SLV) over the previous two months.

Federal Reserve Members Comment on Inflation, Interest Rates

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US economic concerns

On February 21, John Williams, the president of the Federal Reserve Bank of San Francisco, cautioned investors that the global fall in interest rates could make it harder for central banks to keep their economies steady.

Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, seemed positive about an interest rate hike in the March meeting. Harker pointed toward inflation, output, and other data that could give direction to the performance of the US economy.

Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, based his comments on the health of the country’s labor markets. He suggested that the Fed couldn’t boost rate hikes much sooner.

Impact on miners

The sentiment of these Federal Reserve officials in increasing interest rates sooner rather than later could cause a slump in precious metals. The overall sentiment regarding the US interest rate hike is playing on precious metals, as well as on mining shares like Barrick Gold (ABX), Alamos Gold (AGI), Eldorado Gold (EGO), and Pan American Silver (PAAS). These four miners have risen about 14.5%, 5.1%, 8.2%, and 11.1%, respectively.

Combined, these mining shares make up ~13.2% of the VanEck Vectors Gold Miners ETF (GDX) portfolio. GDX itself has seen a slight rise of 1.8% during the past month. 

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