Gold ETFs and Miners Taking Cues from Rate Hike Conundrum

Meera Shawn - Author

Dec. 4 2020, Updated 10:53 a.m. ET

GLD shrinks

As precious metals prices have slumped, so have the exchange-traded funds that track the space. The world’s biggest precious metal fund, the SPDR Gold Shares ETF (GLD), posted its biggest loss in almost five years. The fund has seen bearish sentiment since October. The GLD ETF fell 2.4% on Wednesday, which was the biggest fall it’s had since 2011. GLD now has 639 tons of gold.

The stronger US dollar is posting more losses for these dollar-based funds. Since they’re priced in the US dollar, higher currency rates make them unattractive for foreign currency investors.

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The future for these gold-based funds or, for that matter, other precious metals–based funds like the iShares Silver Trust (SLV), may be hurt by silver price changes. GLD and SLV have lost 10.4% and 10.6%, respectively, year-to-date.

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Interest rate hike

Investments in the precious metals sector—including mining—substantially depend on the rate hike conundrum. As interest rates are poised to rise, alternative investments like gold and other commodities will be less attractive to investors since they’re non–interest-bearing. These non–interest-bearing assets should keep falling as rates rise.

Mining companies also take their prices from these precious metals, so they may participate in the fall. Stocks like Agnico-Eagle Mines (AEM), Sibanye Gold (SBGL), and Silver Wheaton (SLW) may fall alongside precious metals. These three companies are about 12.1% of the VanEck Vectors Gold Miners ETF (GDX).


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