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The Dollar, Fed Impact on Precious Metals

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The Dollar, Fed Impact on Precious Metals PART 1 OF 4

How the Selection of Fed Chair Could Impact the Precious Metals

Fed chair appointment

Precious metal’s futures had down day, for the most part, on Thursday, October 26. Gold futures for November expiration were 0.74% lower, while silver for December futures fell 0.67%, and platinum for December expiration sank 0.55 lower. Palladium scaled 1%, however, and has seen YTD gains of 41%.

The drop in most precious metals last Thursday was most likely due to the revival of the US dollar, which rose 0.96% that day, likely on the news of the man whom the Trump administration plans to appoint as the new Federal chair.

How the Selection of Fed Chair Could Impact the Precious Metals

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The US dollar has seen a 30-day gain of 1.8%. Market experts were expecting that John B. Taylor, one of the candidates for Fed chair, might raise the interest rate at a faster pace than earlier expected, which could be beneficial for US bonds and the US dollar.

Dollar-based assets

A hike in the federal funds interest rate is positive for the domestic currency because more and more investors would be prompted to invest in higher yield-bearing assets, thus increasing the demand for the dollar. The higher the demand for the dollar, the lower the demand for dollar-based assets like gold and silver would be.

But a drop in precious metals is often negative for the mining funds and shares. The gold- and silver-based iShares Gold Trust (IAU) and iShares Silver Trust (SLV) fell 0.90% and 1%, respectively, on Thursday, October 26.

The miners that had an up day on Thursday, despite the drop in precious metals, include Barrick Gold (ABX), Pan American Silver (PAAS), Iamgold (IAG), and Kinross Gold (KGC).

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