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

Yellen Puts the Rate Hike off the Table, Giving Gold a Boost

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Jun. 7 2016, Published 10:08 a.m. ET

Yellen takes a step back

Federal Reserve Chair Janet Yellen mentioned in her speech on Monday in Philadelphia that employers slammed the brakes on hiring in May. The US economy only added 38,000 jobs, which was the lowest monthly job gain since 2010. Job gains in April were also revised downward. These weak numbers have likely taken the rate hike off the table for the upcoming FOMC (Federal Reserve Open Market Committee) meeting this month.

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The safe-haven bullion got a major breather on Friday as the economic data showed weakness in the US economy. The further the rate hike is postponed, the better it is for assets like gold, silver, and other precious metals. Unlike Treasuries, these metals bear no interest. Therefore, their appeal reduces with rising interest rates.

As the rate hike will likely be postponed after the dovish stance of Janet Yellen in her speech on Monday, June 6, the precious metals rose and had a breakthrough.

The graph above shows the relationship between gold and interest rates.

Funds and miners react

The rise of the precious metals over the past two days also helped funds like the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the iShares Silver Trust (SLV). These two funds rose 1.8% and 0.45%, respectively, on Monday.

The mining shares that tumbled despite the gains in the four precious metal include Cia de Minas Buenaventura (BVN), Pan American Silver (PAAS), and Barrick Gold (ABX). These three shares tumbled 2%, 0.71%, and 1.4%, respectively, on Monday. Combined, these three miners make up 11.7% of the VanEck Vectors Gold Miners ETF (GDX). GDX rose 0.47% on the day.

In the final part of this series, we’ll see how other mining stocks have fared.

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