Key rates unchanged
The Federal Reserve kept the key interest rates unchanged in its September meeting. This gave gold prices a boost, as gold has a tough time competing with interest-yielding assets. On September 16, 2015, gold settled at $1,119 an ounce. This is a gain of 1.5%, its highest one-day gain in a month.
The SPDR Gold Trust (GLD), the gold-backed ETF, rose 2.4% in two trading days after the Fed’s announcement. On the other hand, the US dollar (UUP) fell by 1.3% in the same timeframe as the Fed’s members were worried about China’s growth concerns and volatility in its financial market.
However, gold’s rally following the Fed meet was short-lived as discussions quickly moved to the next timing of the rate hike. Earlier, the uncertainty about the rate hike decision increased volatility across the markets in the first half of September.
Now that the meeting is over, the timing of the rate hike has made investors anxious, as the rate hike delay is a sign of the health in the domestic economy.
Fed’s members’ views on rate hike
Federal Reserve chair Janet Yellen commented during a September 24 speech that she expects the Fed to start raising rates later in 2015—as long as inflation remained stable and the US economy was strong enough to boost employment. Thirteen out of 17 Fed members still believe that rate hike is possible this year while three expect a rate hike in 2016.
The Fed has two more meetings scheduled for 2015, one in October and the other one in December, to make a decision on a rate hike. The impending rate hike and the strength in the US dollar are the major factors in keeping a lid on gold prices.
This should in turn be negative for gold prices (GLD) (IAU) and gold stocks including Goldcorp (GG), Kinross Gold (KGC), Hecla Mining (HL), and Silver Wheaton (SLW). It should also be negative for the VanEck Vectors Gold Miners ETF (GDX), which invests in these gold stocks. Goldcorp and Kinross Gold account for 10.60% of GDX’s holdings.