Gold Investors’ Sigh of Relief with Delay in Rate Hike



FOMC meeting

As most investors and economist had predicted, the FOMC stayed dovish in its September meeting. Gold had risen 1.5% to $1,119 on Wednesday, September 16, anticipating the decision of the meeting. Silver rose 3.9% on the same day and 0.67% on Thursday, September 17. Platinum and palladium also rose on news of the rate hike delay. As we saw in the results on Thursday, the awaited inflation data likely caused the Fed to rethink its plans and make a decision that most economists predicted and that bullion lovers saw as a sign of relief. Below is a chart of the US ten-year breakeven spread, which is a good proxy for inflation with gold.

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Gold investors relieved

The dovish statement by the Fed on the rate hike decision and the further delay in increasing the interest rates caused gold to rally on Thursday, September 17. Hand-in-hand were gold-backed ETFs, as the yellow metal was more attractive than the Fed. ETFs such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) also rose compared to the previous week.

Mining equities like Barrick Gold Corp. (ABX), Pan American Silver Corp. (PAAS), and Silver Wheaton Corp. (SLW) also buoyed because of the delay in increasing the interest rates. These three stocks together account for ~13% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

FOMC delays liftoff

The Federal Open Market Committee decided to keep the interest rates close to zero. The August turbulence of the Asian markets, followed by the rout in commodities and decline in stocks caused the Fed to rethink the liftoff move. Also, the declining inflation rate that is still nowhere close to the 2% target level further inclined towards a delay in lift off. Stronger US dollar compared to other currency may likely cause falling export figures for the US. All the statistical data indicated a lackluster economy that would probably be unable to stand a rate hike.


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