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What Is More Crucial for Gold: Demand or Rate Hike?


Nov. 25 2015, Published 3:40 p.m. ET

Surging demand

According the WGC’s (World Gold Council) third quarter report on gold, the demand for gold worldwide has been on the rise, soaring by a whopping 33%. Whether it’s China, the United States, India, or Europe, all are jumping on gold.

The price of gold, however, seems to be on a continual downward journey. Silver, platinum, and palladium have also followed the same route as gold. Stronger demands are shown in the above chart.

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Lifting of rates

The rising demand worldwide of gold and its falling price seem to be conflicting. However, what is playing a crucial role in the determination of precious metals prices is most likely the potential interest rate hike scenario. The Federal Reserve is on a mission to raise rates, but the economy’s backing is required. Higher rates can only be sustained if the economy is growing.

Since interest rates may rise, the demand for treasuries could see a rise, and precious metals may retreat. Not even higher consumer demand worldwide is able to buoy precious metals prices.

The loss in precious metals is also extended to companies in the mining business. Stocks such as Sibanye Gold (SBGL), Gold Fields (GFI), and Coeur Mining (CDE) have fallen in the current year. These three companies together make up 6.7% of the VanEck Vectors Gold Miners ETF (GDX).

Mining business ETFs that have also plunged in the current year include the Sprott Gold Miners ETF (SGDM) and the Global X Silver Miners ETF (SIL).


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