How the Federal Reserve Just Moved Precious Metals
Yields or no yields
On September 20, 2017, gold futures for October expiry closed 0.44% higher than the previous day, ending at $1,312.5 per ounce. Gold touched a low of $1295.6 per ounce that day.
Silver futures for November expiry was 0.31% higher on the same day, ending at $16.3 after touching a low of $16.1. But these futures contracts would have settled lower if the Fed’s verdict would have come in earlier in the day, before the futures market closed.
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Although the Fed indicated yet another hike in 2017, the cycle of hikes in interest rates on US Treasuries may end sooner than expected. Remember, the relationship between gold (GLD) and US interest rates (IEF) (SHY) is inverse. With higher the interest offered on US Treasuries, investors could want to jump into these havens, leaving behind the non-yield-bearing precious metals.
Overall, markets perceived the Fed’s latest statement on September 20 as hawkish, and this moved safety assets like golf lower. The Fed meanwhile planning to reduce its balance sheet, tapering its $4.5-trillion balance sheet by $10 billion per month. This factor could alo work negatively for gold.
At the same time, the calmer tensions surrounding the Korean peninsula could mean a further downward trend for gold, as global unrest typically causes gold to rise.
The mining shares that lost on Wednesday, September 20, include Gold Fields (GFI), Sibanye Gold (SBGL), Royal Gold (RGLD), and Pan American Silver (PAAS), which fell 2.5%, 3.1%, 1.3%, and 2.4%, respectively.