How Did the Fed’s Rate Hike Impact Precious Metals?
As investors kept waiting for the Fed to end its two-day meeting, concerns kept rising about the Dutch election. The bullish bias continued during the trading session on March 15. Gold touched the day’s high of $1,221.2 per ounce. The Dutch election gave gold a kick due to safe-haven bids accumulating. However, gold ended the day marginally lower at $1,200.1 per ounce. Silver and platinum ended the day flat. They fell during the past week due to concerns about the interest rate hike. Silver and platinum ended at $16.9 per ounce and $935.6 per ounce, respectively.
Palladium was the biggest gainer among the four precious metals on Wednesday. It rose 0.65% and ended the day at $747.5 per ounce.
Interested in AUQ? Don't miss the next report.
Receive e-mail alerts for new research on AUQ
Interest rates and gold
Most of the fluctuations in precious metals over the past few weeks were due to fear about the rate hike. The above chart shows the changes in US Treasury rates and gold prices (IAU).
Since the Fed’s rate hike was predicted, precious metals are falling. Precious metals are non-yield-bearing assets. As a result, they suffer as the interest rate hike takes place. Investors might be attracted to assets that offer intermediary cash flows, especially when the yield is upward sloping.
It seems like the rate hike was already priced by the markets. Most of the mining shares and funds rose on Wednesday. Shares of Goldcorp (GG), Sibanye Gold (SBGL), Aurico Gold (AUQ), and Gold Fields (GFI) rose 6.1%, 9.7%, 3.6%, and 9.6%, respectively. Together, these four miners contribute ~14.5% to the changes in the VanEck Vectors Gold Miners Fund (GDX).