Gold turns green
Gold entered the positive territory yesterday and scaled the high of $169.60 an ounce. Gold enthusiasts likely have their eyes set on the FOMC meeting scheduled for today and tomorrow. Gold rose 0.29% yesterday and had a trading range from $1,162.30 to $1,169.70 per ounce. Silver gained 0.59% and finished the day at $15.90 per ounce. A few of the Federal Reserve officials increasingly look dovish as the global economic outlook worsens and inflation remains reasonably below the target. Although chairperson Janet Yellen has remained hawkish and aims to raise rates before the year’s end, the chances seem bleak.
The above chart shows the relative historical price performance of gold compared to that of the US Treasury ten-year breakeven, which is used as a proxy for inflation. The US Treasury ten-year breakeven is the spread between the ten-year Treasury yield and the ten-year inflation-protected security yield, or TIPS. Gold is often seen as a hedge against inflation. If inflation is set to rise, we may expect gold to rise, as well.
However, inflation seems to be stagnant in the current scenario, and the lack of rise in inflation remains yet another concern for the FOMC members. This week’s forthcoming data such as consumer confidence, durable goods order, and services PMI (purchasing managers’ index) may likely determine whether the Fed moves toward a rate liftoff.
In the precious metals sector, platinum and palladium retreated yesterday. Platinum and palladium fell 0.42% and 1.4%, respectively. All the precious metals have seen a decline on a five-day trailing basis. However, most mining ETFs have risen. For example, the leveraged Direxion Daily Gold Miners ETF (NUGT) and Sprott Gold Miners ETF (SGDM) have risen 4.4% and 3.2%, respectively, on a five-day trailing basis. Similarly, gold mining companies such as Silver Wheaton Corp. (SLW), Yamana Gold (AUY), and Franco Nevada (FNV) also saw an increase in their prices on the same basis. These three stocks together make up 13.8% of the VanEck Vectors Gold Miners ETF (GDX).