Precious metals are losing their allure
Gold futures for June expiration settled lower on Monday, May 9, 2016. The fall was likely to erase previous gains due to the jobs data that fueled haven demands. Gold closed at $1,266.60 per ounce after touching a low of $1,262.80. That was a 2.1% decline from the previous day’s close. It was a fall of $27.40 for gold. Silver, platinum, and palladium fell 2.5%, 3.5%, and 3.8%, respectively, on the same day. The allure of these precious metals was impacted due to the recovery in Market sentiment.
Precious metals rose on Friday, May 6, 2016, after weaker-than-expected jobs data boosted expectations that the Federal Reserve would leave interest rates unchanged. Lower interest rates provide a boost to non-yield-bearing assets such as gold and other precious metals. Gold remained slightly shy of the $1,300 mark after weak employment numbers.
The weakness in precious metals impacted funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two funds fell 2.2% and 3.1%, respectively, due to declines in their respective metals. Investors often prefer investing in paper gold and paper silver over physical metals. With the physical market staying quiet, these funds stay in demand.
South African miners tumbled
Mining shares amplify the returns in precious metals. Mining companies that saw the highest fall on Monday, May 9, include AngloGold Ashanti (AU), Harmony Gold Mining (HMY), and Sibanye Gold (SBGL). These three South African miners were impacted the most by the fall in gold. They fell 13.8%, 10.6%, and 12.6% respectively, on Friday, May 6. Together, these miners make up about 7% of the VanEck Vectors Gold Miners ETF (GDX). GDX fell 6.4% on the same day.
In the next part of this series, we’ll see how the strength of the US dollar is affecting gold.