What Influences the Rise and Fall of Gold?
Hike or no hike
Investors are often speculative about President Donald Trump’s proposed tax reforms and the possible impact on the market in general and on precious metals. They also keep an eye on the growing likelihood of an interest rate hike in December, which could be negative for precious metals. They also watch the economic numbers that come out of the United States, numbers that indicate the strength of the economy.
Robert Kaplan, president of the Federal Reserve Bank of Dallas, said on Monday that the Federal Reserve needs to look hard at whether the rate hike could happen in December. However, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, hinted that the markets might have to wait for further rate hikes.
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Precious metals are all dollar-denominated assets, so they often fall with rising interest rates.
Treasuries and Korean tensions
If higher cash flows are offered on Treasuries, chances are that investors could switch to yield-bearing assets and desert precious metals. The inverse relation between the two is clear in the above chart.
Mining shares and funds could also be negatively impacted by a rate hike. Mining funds that have witnessed a rise in the past month despite uncertainties include the VanEck Vectors Gold Miners ETF (GDX) and the Sprott Gold Miners ETF (SGDM), which rose 1.4% and 1.1%, respectively, on a 30-day trailing basis. B2Gold (BTG), Coeur Mining (CDE), Eldorado Gold (EGO), and New Gold (NGD) have risen in the last 30 trading days.
Tensions over North Korea have been a crucial contributor to the upside of precious metals and mining stocks. Although the unrest seems to have subsided for now, any further news from the Korean peninsula could give a boost to precious metals and miners.