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Gold Not so Solid: Gauging the Impact of the Latest News

PART:
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Part 2
Gold Not so Solid: Gauging the Impact of the Latest News PART 2 OF 5

How the GDX Mining Fund and Interest Rates Relate

Mining companies’ performances in March

Before the Fed’s rate hike decision on March 15, gold had retreated for nine days in a row, touching its lowest mark of $1,195 per ounce in the past month and a half. Previous fears that the US Federal Reserve would hike the rate of interest on federal funds had also already begun to impact mining stocks substantially.

As gold and silver had dropped 3.7% and 7.5%, respectively, over the past month, the Vaneck Vectors Gold Miners ETF (GDX) and the Global X Silver Miners (SIL) also receded 3.7% and 6.2%, respectively.

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The chart above shows the performance of GDX as compared to the US short- and long-term rates of interest (SHY) (IEF). And just as gold and silver suffer from any rise in US interest rates, so do mining funds. The higher rate of interest now offered on Treasuries will likely deter investors away from precious metals, though it appears that mining funds and shares had already been suffering in anticipation of the Fed’s decision on March 15.

Rate hike fears

Precious metal mining shares Harmony Gold (HMY), Pan American Silver (PAAS), IamGold (IAG), and Agnico-Eagle Mines (AEM) have lost over the past 30-days due to the tumbling precious metals. Combined, these four miners make up about 8.5% of GDX.

The RSI level for GDX is about 25, which suggests that an upward revision in price is still possible. Notably, the precious metals fund GDX and other mining shares rebounded on Monday, March 13, prior to the Fed’s meeting on March 15. The Vaneck Vectors Junior Gold Miners Fund (GDXJ) had, prior to the decision, witnessed an outflow of almost $88 million, which represented a fall of nearly 1.8% on a week-over-week basis.

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