What Are the Economic Factors Doing to Gold?
Economic impact on precious metals
The status of the economy and the probable direction that the US Fed’s rate of interest will take are closely linked to the numbers that came out in the US. Prior to the Fed’s rate hike decision on March 15, precious metal investors were keeping a close eye on the employment figures that came out during the past week on Friday, March 10.
The average hourly earnings that measure the change in the prices that businesses pay for labor (excluding the farming industry) were negative at 0.2%, missing the analyst expectation of 0.3%. The February numbers were also negative, though the unemployment rate met the expectation of 4.7%.
One positive figure was non-farm employment, which measures any change in the number of employed people during the previous month (excluding the farming industry), which came in at 235,000—higher than the expected figure of 196,000.
Gold versus Treasuries
Such numbers create a positive impact on the growth prospects of an economy, but on March 15, the Fed went ahead and increased the interest rate on Treasuries. Remember, the interest rate and precious metals are inversely related to each other, as the higher yield offered on US Treasuries causes investors to park their money in US Treasuries (SHY) (IEF) rather than in gold (GLD).
Precious metals offer no intermediary cash flows like bonds and equities, and so demand for them can decline as investors are drawn to higher yield-paying securities.
Precious metal mining shares that closely track the performance of gold include Yamana Gold (AUY), Goldcorp (GG), Silver Wheaton (SLW), and Hecla Mining (HL)—all of which have seen their share prices drop in the past month as precious metals receded.