Will the Fed Pull Gold’s Strings?
A pending hike
The recent lift in the US dollar could have been due to the Fed’s June meeting, which will end on Wednesday, June 14. Analysts are widely expecting the rate of interest to get a hike in the current meeting, and investors will likely be looking for further hints as to the pace of future hikes. Remember, a higher interest rate promotes growth in the dollar but a slump in gold and silver.
Platinum and palladium rose 0.45% and 0.94%, respectively, on Monday, June 12, despite the widely expected increase in interest rates.
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The above chart compares how gold has moved versus the US two- and ten-year interest rates over the past year and a half. As gold is a non-yield bearer, we can expect it to tumble as the interest on other assets like Treasuries rise.
Markets are pricing an almost 100% chance of a hike following the Fed’s June meeting. For this reason, investors are following the outcome of the FOMC (Federal Reserve Open Market Committee) meeting closely, as any new direction it takes toward the economy could determine the future of gold and mining funds like the Sprott Gold Miners (SGDM) and the Global X Silver Miners Fund (SIL). These two funds have seen year-to-date gains of 7.4% and 8.8%, respectively.
To be sure, if the Fed decides on a slower hike rate for the rest of 2017, it could give some buoyancy to precious metals and mining shares like Royal Gold (RGLD), First Majestic Silver (AG), Cia De Minas Buenaventura (BVN), and B2Gold (BTG).