How Yellen’s Caution surrounding Interest Rates Could Affect Gold
When the interest rate hike took place on March 15, 2017, much of the upside in precious metals had already been priced in by the market. Following the hike, investors kept a close watch on Federal Reserve chair Janet Yellen’s press conference, which provided further hints about the rate hike path the Fed could take going forward.
At first, the conference seemed more dovish, as Yellen discussed low core inflation. She mentioned that going forward, rate hikes could be more gradual. This was a slight shift from her describing them earlier as “only gradual.”
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After the Fed stuck to its projections for two more rate hikes in 2017 after the hike on March 15, 2017, gold buyers resurfaced.
Rising rates of interest on Treasuries curb the demand for precious metals, which offer no intermediary cash flows.
Interest rate and gold
Gold saw a revival in its price, having risen ~2.4% on a trailing-five-day basis, on March 17, 2017. The other three precious metals, silver, platinum, and palladium, followed suit, rising 2.9%, 2.7%, and 4.3%, respectively, during the same timeframe.
Fluctuations in precious metals are closely reflected in mining shares. The mining stocks that rose on a trailing-five-day basis included Sibanye Gold (SBGL), Gold Fields (GFI), Yamana Gold (AUY), and Pan American Silver (PAAS). These companies saw rises of 11.8%, 15.3%, 5.7%, and 4.7%, respectively, during the period.