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The Fed’s Uncertainty about a Rate Hike Is Helping Gold

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Sep. 8 2015, Updated 5:02 p.m. ET

The Fed’s upcoming decision

The Federal Reserve didn’t offer explicit direction in regards to the interest rate hike on Wednesday, September 2, and equity markets slumped. However, the possibility that rates could stay at current levels beyond September brought comfort to investors who were anxious about the slowdown in Chinese markets.

All eyes are on the next Fed meeting, scheduled for September 16 and 17. Positive economic data in August will influence the Fed’s next move. However, the yuan devaluation on August 11 made the Fed’s decision more complicated.

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International Monetary Fund requirements

Yuan devaluation seems like a step in favor of adding the Chinese yuan (CNY) to the IMF (International Monetary Fund) reserve currency basket. However, currencies must have a floating rate for this. This condition has proven to be a hurdle for China, as the yuan currently works as a pegged currency with the US dollar.

Such global concerns, mainly from Asian counterparts, sent gold to about $1,168, a 3.6% increase, during the week ending August 21. However, gold also lost about 3.1% during the week of August 28 as the markets relatively stabilized. Gold currently has a 30-day trailing gain of 3%. Silver surged less in comparison to gold. It has increased 0.93% on a five-day trailing basis and has a 30-day trailing gain of 0.78%.

Miners suffer more than the metals

The SPDR Gold Shares ETF (GLD) rose 3.38% on a 30-day trailing basis. The ETF is trading at $107.84 as of September 3 and has a volume close to 3,900,000. On the other hand, the SPDR S&P Metals and Mining ETF (XME) has lost 0.56% on a 30-day trailing basis. The miners usually are more affected than the metals themselves.

Owing to the July downfall in gold prices by close to 7%, the mining companies lost significantly in that month. The operating margins of most miners have suffered due to the steep decline in metal prices. Mining companies like IamGold (IAG), Kinross Gold (KGC), Newmont Mining (NEM), and Eldorado Gold (EGO) have fallen a great deal in the past trading year. These stocks constitute 13.5% of the VanEck Vectors Gold Miners ETF (GDX).

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