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Could the New Fed Chair Be Beneficial for Gold and Its Miners?

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Part 4
Could the New Fed Chair Be Beneficial for Gold and Its Miners? PART 4 OF 5

Could the New Fed Chair Be Beneficial for Gold and Its Miners?

Fed decisions and gold

Most market participants have been waiting for the nomination of a new Fed chair, which could substantially influence the movement of interest rates. On November 2, 2017, President Donald Trump appointed Jerome Powell as the new Fed chair, which could be dovish for interest rates.

If the Fed hikes interest rates at a slower-than-expected pace, precious metals would be positively impacted. That’s due to the inverse relationship between gold and interest rates. The higher the rate offered on Treasuries, the lower the demand for non-yield bearers such as gold. Similarly, a delay in a rate hike could cause a rebound in precious metals. However, according to the CME FedWatch Tool, the market is pricing a whopping 97% likelihood of a rate increase in December 2017. That could take down precious metals, at least for the short term.

Could the New Fed Chair Be Beneficial for Gold and Its Miners?

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The inverse relationship between the two is depicted in the chart above, which uses the US two-year and ten-year rate of interest (SHY) (IEF) against gold (IAU) (SLV).

Tax cut impact

The United States House of Representatives has unveiled legislation to overhaul the US tax code. It will reportedly propose to slash the corporate tax rate from 35% to 20% and reduce the number of tax brackets for individuals. That has probably caused the US dollar to fall and the US ten-year Treasury yields to fall to a two-week low. We’ll look at the dollar and precious metals relative to movement in the next part of this series.

The mining shares that saw a down day on Thursday, November 2, 2017, were Coeur Mining (CDE), Barrick Gold (ABX), Hecla Mining (HL), and Randgold Resources (GOLD). They fell 0.93%, 0.84%, 1.1%, and 7.8%, respectively, that day.

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