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How the Fed's Meetings Are Slaying Gold

PART:
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How the Fed's Meetings Are Slaying Gold PART 1 OF 7

How May 3 Caused a Slump in Gold and other Precious Metals

Gold versus stocks

Precious metals saw yet another slump on Wednesday, May 3, with gold, silver platinum, and palladium falling 0.68%, 1.7%, 2.3%, and 1.8%, respectively. This slump was primarily due to a rise in equities.

Over the past week, stock markets have been dominant in playing precious metals. The increase in equities means an increase in the risk appetite of investors, and thus more demand for risky assets. But an increase in risk sentiment dents metals like gold and silver, which are famously known as safe-haven assets.

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The above chart shows how gold and equities often follow an opposite track. Gold is depicted by the SPDR Gold Trust (GLD), while equities are depicted by the SPDR Dow Jones Industrial Average ETF (DIA). GLD fell 2.3% during the past 30 trading days, while DIA was almost 1.7% higher on Wednesday, May 3.

The precious metals dump

Gold dropped to a three-week low of $1,236.4 an ounce on May 3, ending the day at $1248. Silver closed the day at $16.5 per ounce, which is its lowest close since the beginning of January 2017. Platinum and palladium closed at $904 and $799.3 per ounce, respectively.

Notably, stock markets inched higher on Wednesday as investors awaited the outcome of a two-day US Federal Reserve policy-setting meeting.

Mining companies suffering

Remember, although mining stocks belong to the equity category of markets, they closely associate with precious metals most of the time. Newmont Mining (NEM), Agnico-Eagle (AEM), Coeur Mining (CDE), and Pan American Silver (PAAS) fell 0.97%, 1.2%, 2.4%, and 0.61%, respectively, on May 3.

Continue to the next part for a discussion of the impact of the Fed’s decision on precious metals.

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