uploads///gold price versus real interest rate

Precious Metals Fall on Clues of December Rate Hike


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

Most important driving factor

Precious metals plunged on Monday, November 23, 2015, and gold futures settled much lower as well. Prices fell to their lowest level since early 2010. The retreat in these precious metals was due to the rise in the US dollar. The US dollar most likely got a boost from growing expectation that the Federal Reserve will raise interest rates in December.

Gold, silver, platinum, and palladium fell 0.90%, 0.46%, 0.99%, and 3.1%, respectively, on November 23.

The most important phenomenon driving precious metals today is the likely liftoff of interest rates above the zero mark. Investors may flock to the treasuries, further withering precious metals. Above is a chart that depicts the relation of gold prices with US interest rates.

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DXY and gold

The DXY currency basket, which measures the rate of the US dollar against six major world currencies, gained 2.6% on a 30-day-trailing basis. On the same basis, gold lost 7.4%. Industry analysts expect a recovery in the prices of these precious metals, as the investors who went short on them may reverse their positions for profit-booking.

ETFs that monitor the performances of precious metals include the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV). These indicators have fallen 7.5% and 10.2%, respectively, on a 30-day-trailing basis.

Mining companies that have also fallen significantly include Barrick Gold (ABX), Cia De Minas Buenaventura (BVN), and AngloGold Ashanti (AU). Together, these companies contribute 14.6% to the price changes in the VanEck Vectors Gold Miners ETF (GDX). GDX rose 2.3% on Monday, November 23, 2015.


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