How the Fed Keeps Playing on Precious Metals

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How the Fed Keeps Playing on Precious Metals PART 1 OF 4

Mapping Thursday’s Tumble for Metals and Miners

Fed impact

Precious metals traded lower on Thursday, September 21, after the Federal Reserve gave a hawkish tone at Wednesday’s FOMC (Federal Open Market Committee) meeting. Precious metals are famous for their safe-haven appeal, and they are often negatively impacted by the possibility of a rise in the rate of interest.

Precious metals are also highly sensitive to yields (IEF) (SHY) because they bear no intermediary cash flows. The higher interest provided on Treasuries often leads more investors to opt for interest-bearers over gold (GLD) and silver.

Mapping Thursday&#8217;s Tumble for Metals and Miners

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Gold fell 1.7% on Thursday and ended the day at $1,290.6 per ounce. Silver followed gold, falling 1.8% to close at $16.5 per ounce. Platinum closed 0.58% lower than the previous day, ending Thursday $939.9 per ounce, while Palladium was the only precious metal that gained, rising 0.15% on Thursday and ending the day at $912.7 per ounce.

As suggested by the recent FOMC meeting, another hike will likely come in 2017, but the pace of rate hikes will slow down after that. The Fed also said that it plans to trim the $4.2 trillion in asset holdings that it has built in the wake of the 2008 financial crisis. Such a scenario could lead to lowered liquidity in the market, which is negative for risky assets like equity but good for havens like gold and silver.

Mining shares that have seen a negative impact due to the fall in metals include Newmont Mining (NEM), New Gold (NGD), Barrick Gold (ABX), and Coeur Mining (CDE).


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