Gold’s returns after the meeting
As expected by most market participants, the Fed ended the policy-setting meeting on a note to delay the decision of raising the interest rates above the zero level. Although participants expected the day to be positive for the markets, the markets turned lower after the meeting. The Fed said that it continued to monitor economic and financial developments across the globe. However, the Fed didn’t mention global risks that could impact the US economy—like it warned at the September meeting. The December gold futures had a five-day trailing loss of 0.41%.
All of the precious metals lost on a five-day trailing basis, except silver, as they waited for the decision. Silver likely held steady due to the rising demands. The returns for gold bugs have been following the Fed’s stance for quite some time.
The above chart shows the relationship between gold prices and the US real interest rates.
Fed’s December meeting
The Federal Reserve has decided to hold the rates flat at the zero mark for the current month. Gold bugs are waiting for the Fed to lift the rates after almost a decade. If the December meeting gives a green flag to the interest rates, the rise in rates will curb the appeal for gold. A possible fall in the price of the bullion is expected once the rates lift. Investors would likely be more attracted towards interest-bearing assets like Treasuries and dividend-bearing equities than gold. Precious metals bear no interest, so the demand should witness a fall if the Fed opts for a liftoff.
Gold and silver futures have seen a heavy short covering and elevated long positions. They rose 3.10% and 9.50%, respectively, on a 30-day trailing basis. Miners ETF like the SPDR S&P Metals and Minning ETF (XME) and the Global X Silver Miners ETF (SIL) rose 6.50% and 16.80%, respectively, on a 30-day trailing basis. Most of the mining companies like Royal Gold (RGLD), B2Gold (BTG), and GoldCorp (GG) saw a rise in their prices in the last month. These three companies account for 13.60% of the VanEck Vectors Gold Miners ETF (GDX).