How Inaction by the Fed and Bank of Japan Affected Precious Metals


Apr. 29 2016, Published 6:09 p.m. ET

Inaction spikes gold and silver

Gold futures for June expiration rose for the fourth straight day on Thursday, April 28, 2016. Gold touched its high of $1,271.7 per ounce and closed at $1,266.40 per ounce. Silver also reached its highest level of ~$17.70 per ounce and closed at $17.60 per ounce. This is the highest level for silver since mid-May 2015.

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The rise in precious metals was likely triggered by the inaction by the Federal Reserve and the Bank of Japan. Although resilience from the Fed was expected, the Japanese policymakers were expected to implement a fresh round of stimulus to weaken the yen and combat low inflation.

Alongside the rise in gold and silver, platinum and palladium also increased by 2.6% and 2.4%, respectively.

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Precious metal funds and miners

The increase in gold provided a boost to the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV). These two precious metal–backed funds rose by 1.8% and 2.4%, respectively. These two funds closely track the performance of precious metal and have increased about 19.6% and 27.1%, respectively, since the beginning of 2016.

The above chart shows the comparative price performance of these two crucial precious metal–backed funds.

The cumulative gains in the precious metals in 2016 have benefited the miners, which have seen exponential gains. The first quarter performance of the mining shares was ahead of most of the equity channels.

Kinross Gold (KGC), Hecla Mining (HL), and AngloGold Ashanti (AU) rose by 158.2%, 109%, and 104.6%, respectively, on a year-to-date basis. Together, the three shares make up 8.9% of the portfolio of the VanEck Vectors Gold Miners ETF (GDX). GDX rose by 69.4% during the same timeframe.


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