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Russian Tensions and a Looming Rate Hike Play Tug of War with Gold

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Nov. 25 2015, Updated 2:49 p.m. ET

Interest rates and gold

The looming possibility of a December interest rate hike has begun to affect gold investors, as gold has retreated 7.40% in the past 30 trading days. Silver, platinum, and palladium also have decreased 10.60%, 15.30%, and 21.70%, respectively, on a 30-day trailing basis.

If interest rates rise, precious metals retreat because they are non-interest-bearing investments. Unlike Treasuries and equities, gold and other precious metals do not provide any cash flows to investors. So, rising rates—and indications of rising rates—hurt the prices of gold and precious metals. The following chart illustrates how the Fed’s actions regarding a possible rate hike affected gold futures.

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A safe haven

Gold’s safe-haven appeal was highlighted as tensions began to grow between Turkey and Russia. Political and military tensions have historically spiked the prices of gold as investors flock to this safe haven in times of uncertainty. Currently, gold prices seem to be in flux, as they typically rise on geopolitical concerns and retreat due to a potential December rate hike.

Returns in the price of gold could be followed by ETFs like the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the SPDR S&P Metals and Mining ETF (XME). These two ETFs rose 2.60% and 2.80%, respectively, on November 24, 2015, as gold rose 0.63%.

The mining companies that gained on Tuesday, November 24, included New Gold Inc. (NGD), Primero Mining Corp. (PPP), and Agnico-Eagle Mines (AEM), which rose 4.90%, 6.30%, and 3.00%, respectively. Together, these miners contribute 7.80% to the VanEck Vectors Gold Miners ETF (GDX), which gained 3.80% on the day.

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