Precious Metal Investors Didn’t Get Weak Knees after Fed Decision



The dollar and precious metals

The Fed has raised the interest rate 0.25%. The Fed’s press on the gradual normalization of rates may likely relieve precious metals. Sudden and dramatic hikes prove more dangerous for commodities. But the markets are rather numb to this rate hike, as though it was very much expected.

Platinum and palladium rose 1.6% and 0.26%, respectively, after the Fed’s decision came out. They’re trading at $869 and $568, respectively, as of Wednesday, December 16, 2015. Silver has been the best performer among the precious metals.

Article continues below advertisement

Investors were most likely assuming that precious metal lovers would get weak knees due to the predicted rise in the US dollar. The dollar and precious metals have a very strong inverse relation. A stronger dollar means the assets denominated in the greenback are getting expensive for investors in other countries.

ETFs and miners

The above graph shows the price performance of gold after every FOMC (Federal Open Market Committee) meeting in 2015. The fall in gold since the month of October has been so sharp that after the Fed’s verdict, the precious metal didn’t react much.

Right after the Fed’s meeting, the SPDR S&P 500 (SPY) rose about 0.65%. Precious metals are continuing to rise, which wasn’t expected. But there could be a delayed reaction.

Mining ETFs such as the SPDR S&P Metals and Mining ETF (XME) and the leveraged Direxion Daily Gold Miners Bull 3X ETF (NUGT) have risen 0.05% and 10.2%, respectively.

Mining-based companies such as Sibanye Gold (SBGL), Agnico-Eagle Mines (AEM), and Coeur Mining (CDE) were trading in positive territory right after the Fed announced the rate hike.


More From Market Realist