Is the Fed’s Stance Affecting Gold?
Federal Reserve’s stance
A crucial factor that affects gold is overall market sentiment. Recently, market sentiment has depended not only on US economic performance but also on other factors like the French elections and the Brexit vote. On the domestic front, the Federal Reserve’s rate hike decisions have affected gold. Recently, the Federal Reserve members were asked their opinion in regards to interest rate hikes in the current year. Read Understanding the Stake of Fed Sentiment in Gold to learn about the Fed members’ comments on upcoming interest rate hikes.
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Fischer’s dovish stance
The vice chair of the Federal Reserve, Stanley Fischer, mentioned that two more rate increases for 2017 were likely. He also said that the productivity growth seems very low as compared to historical standards. Overall, Fisher’s stance was considered to be dovish. Also, the equity markets and bond yields saw a revival after that.
Expectations for a June rate hike have increased due to the overall statements of the central bank officials. As the above chart shows, the rising rates can prove to be harmful to precious metals like gold, as they are non-yield-bearing assets and thus pay no intermediary cash flows.
A rise in interest rates can negatively affect gold and silver funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). However, these two funds have jumped 8.9% and 14.2%, respectively, year-to-date. The mining shares that have also risen year-to-date include B2Gold (BTG), Gold Fields (GFI), Randgold Resources (GOLD), and Pan American Silver (PAAS).