How Rising Yields Could Be Curbing the Precious Metal Appeal
Bond yields and gold
Not only does market sentiment play on precious metals, but interest rates also remain an important factor. US bond yields have risen, for example, as the chances of a Fed rate hike in June have increased. Stock markets also corrected their losses and are on a steady rise.
The revived risk appetite of investors has caused many to shun safe-haven assets like gold and silver. The graph below shows how US interest rates and gold tend to move in opposite directions.
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A precious drop
The relationship between gold and Treasury rates, to be sure, is inverse, as any increase in rates encourages investors to park their money in interest-bearing assets (IEF) instead of the non-yield bearers like gold.
On Tuesday, May 9, 2017, the US bond yields, the stock market, and the US dollar index were all trading higher, which pushed precious metals lower. Gold dropped about 0.9% on Tuesday, settling at $1,216.1 per ounce. Silver fell 1% to $16.1 per ounce. Platinum and palladium also fell 1.9% and 1.6% to close at $899 and $794.4 per ounce, respectively.
Miners scaled on Tuesday
Despite the fall in the precious metals on Tuesday, May 9, some mining shares witnessed an up day. Among mining top performers on Tuesday included IAMGOLD (IAG), Sibnaye Gold (SBGL), Gold Fields (GFI), and First Majestic Silver (AG). These four shares rose 8.9%, 8%, 6.1%, and 4%, respectively, on May 9.
Notably, these four mining stocks make up about 11.8% of the VanEck Vectors Gold Miners Fund (GDX), which rose 1.8% on Tuesday.