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What Key Macroeconomic Events Could Impact Gold?

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Updated

The Federal Reserve

The macroeconomic events that have been affecting gold include factors such as a potential interest rate hike by the Federal Reserve. Last week’s comments from Eric Rosengren, president of the Federal Reserve of Boston, indicated that he was moving from his dovish stance in 2015 to a more hawkish stance.

Rosengren noted, “I want to be sensitive to how the data comes in, but I would say that most of the conditions that were laid out in the minutes, as of right now, seem to be…on the verge of broadly being met.”

[marketrealist-chart id=1331695]

A summer hike could remain a possibility, which could have a negative impact on non-interest-bearing assets such as gold and other precious metals. Gold, silver, platinum, and palladium have been weak, falling 2.6%, 5.7%, 4.2%, and 6.6%, respectively, on a five-day trailing basis.

The opportunity cost of these metals increases as the interest rates offered on Treasuries increase, resulting in a fall in value.

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Brexit

Concerns about a Brexit is another important macroeconomic event that could affect gold prices. Precious metals could see significant fluctuations following a possible exit of Britain from the European Union. Just as gold increased substantially due to the unrest in the global markets at the start of 2016, the possibility of a Brexit could further buoy gold.

Which way?

These two conflicting macroeconomic events may initiate a tug-of-war on gold prices. However, major hedge funds have become been increasingly positive on gold. For further details, please read Why Many Hedge Fund Managers Are Turning to Gold.

Mining shares tumbled

As precious metal prices slip, many of the precious metal mining companies have also experienced losses. Shares of GoldCorp  (GG), Royal Gold (RGLD), and B2Gold (BTG) fell by 6.1%, 5%, and 11%, respectively, on a five-day trailing basis. These three miners together constitute 13.6% of the VanEck Gold Miners ETF (GDX).

The iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV) also fell by 2% each during the last five trading days. The above chart illustrates the comparative performance of gold miners and gold.

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