How the Fed’s Decision Affected Metals and Miners
Gold and silver rebounded
As investors expected, the FOMC (Federal Reserve Open Market Committee) increased interest rates on Treasuries. Due to expectations that there would be a rise, gold and silver were already down 1.3% and 2.8%, respectively, on a five-day trailing basis.
On Wednesday as the Fed lifted the rate a quarter of a percentage point, gold in the cash market was down by a marginal 0.2%. However, gold futures for July expiration rose 0.58% and ended the day at $1,274.2 per ounce. Silver futures for August expiration rose 2.2% and ended the day at $17.2 an ounce. Platinum futures also followed these two metals and jumped 3% to close at $951.9 an ounce. Palladium futures for July expiration were 0.44% lower at $857.6 per ounce. The call implied volatility in palladium scaled as much as 40% on Wednesday.
Interested in GLD? Don't miss the next report.
Receive e-mail alerts for new research on GLD
Miners and funds slipped
The above chart shows how gold and US two-year and ten-year interest rates (SHY) (IEF) react to each other. The chances remain high that a rate rise could pull the non-yield-bearing assets lower. However, the June hike was already priced in by markets, and thus they rebounded from their losses during the past week.
As precious metals bear no intermediary cash flows, a higher interest rate lures investors out of precious metals and into the interest-bearing assets. Though the metals saw an up-day, the metal following funds like the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) continued trading lower. GLD was down 0.55%, while SLV ended the day flat.