uploads///Gold versus Two and Ten Year Interest Rates

Will Gold Keep Clinging to US Interest Rates?


Dec. 4 2020, Updated 10:43 a.m. ET

Gold takes from interest rates

Many investors have been getting cautious on their investments in gold after the sudden surge over the past three months. However, the overall Market sentiment in gold seems to be far from bearish. The government showed a lack of confidence in the economy. During 2015, the rate hike scenario gripped precious metals. It caused a retreat in all four of the metals. Gold lost about 10% in the entire year. In the current year, safe-haven calls buoyed the metals and recovered the losses from the previous year.

Concerns about the US economy might have left the Fed in a conundrum. Investors might not expect a rate hike in April. With the interest rate increase pushed further away, gold could get some additional bounce to the already surging prices.

Precious metals are non-interest yielding assets. They usually benefit when Treasuries rates remain close to zero. The following chart compares the performance of gold to two and ten-year Treasury rates over the past three months.

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Mining shares and funds impacted

The buoyancy of the metals also helped the funds that take their price changes from precious metals like the iShares Silver Trust (SLV) and the VanEck Vectors Junior Gold Miners ETF (GDXJ). These two funds saw an increase of 2% and 8.3%, respectively, over the past month.

Mining-based companies that depend on precious metals for their directional moves include Hecla Mining (HL), Yamana Gold (AUY), and Coeur Mining (CDE). These three funds saw returns of 8.5%, 7.8%, and 46.4%, respectively, during the past month. Together, these three companies contribute 6% to the changes in the VanEck Vectors Gold Miners ETF (GDX).


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