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Assessing Gold Investors’ Fears of a US Interest Rate Hike

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Fed minutes

The dovish Fed minutes from the week ending October 9, 2015, showed that only one out of ten members voted to raise interest rates from 0%, as previously expected. World stock markets witnessed a rise in prices on October 9, following the release of these minutes, climbing to a seven-week high.
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China

Meanwhile, gold trading in Shanghai increased following China’s return from its National Day “Golden Week” holidays. Silver volumes reached new heights as well. After the delay disclosed in the September 2015 policy meeting, gold has risen by approximately 5.10% on a 30-day trailing basis.
The S&P Index has likewise surged by ~3.40% during in the past month. The chart below compares the relative performance of gold futures and the S&P 500 Index over the past 15 years.

Mining ETFs and companies

ETFs (exchange traded funds) that have seen a rise in prices due to surging bullions include the Global X Silver Miners ETF (SIL) and the VanEck Vectors Junior Gold Miners ETF (GDXJ). These two indices have gained by 17.20% and 13.50%, respectively, on a trailing 30-day basis.

Most of the component companies in these ETFs have also seen substantial rises. Specifically, Kinross Gold Corporation (KGC), AngloGold Ashanti (AU), and Pan American Silver Corporation (PAAS) have risen by 34.20%, 28.50%, and 19.40%, respectively, on a trailing 30-day basis. The three stocks together make up 9.10% of the VanEck Vectors Gold Miners ETF (GDX).

Global gold

Gold imports in India reportedly fell by about 50% in September 2015 compared to August. Gold had previously fallen to a monthly average of ~67 tons. But the gold price crash since 2013 has seen a net total of approximately 1,439 tons leave the UK and head to Asian markets. With looming fears of a global rate hike, we might see gold prices retreat, but the likely effect on equities in such an event still remains uncertain.

In the next part of this series, we’ll look at platinum’s coiled spring effect since September 2015.

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