Volume dries up
Gold trading volumes have shrunk over the past few trading days. Volume and volatility both seem have taken a downward plunge. The current volatility of gold is 13, which is significantly lower than the 10-day average volatility of 13.8. Following the Fed’s meeting in mid-December, the trading volumes in gold and all other precious metals have diminished. Volumes had remained high before the Fed gave its verdict and as precious-metal lovers waited in anticipation.
ETFs and miners affected
Assets in the gold-backed funds are near their lowest since 2009, and investors saw selling for the fifth straight day. Holdings in ETFs are at 1,465.6 metric tons. With the fear of further rate hikes in 2016, investors may continue to desert precious metals, which may cause volumes to dry up further.
Rising interest rates curb the appeal of non-interest-bearing gold and other precious metals. As metals do not offer cash flows like treasuries and equities do, investors may move to cash-flow bearing assets, deserting billions.
The likely fall in precious metals and their volumes may also negatively impact ETFs such as the SPDR Gold Shares ETF (GLD) and the Sprott Gold Miners ETF (SGDM). Mining companies may also be in line to face the fall of precious metals. Companies such as Silver Wheaton (SLW), Newmont Mining (NEM), and AngloGold Ashanti (AU) may be impacted substantially. These three stocks make up 14.7% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).