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Fed Meeting Is Over: What’s Next for Precious Metals?

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Dec. 4 2020, Updated 10:50 a.m. ET

What’s next?

The Federal Reserve concluded its meeting on July 27, 2016, and kept the interest rate unchanged. Precious metals took guidance from its decision and most likely began looking forward to the Bank of Japan’s meeting. The major economies of the world continue to impact precious metals, which is why they’re known as haven assets.

The Fed stood pat and showed no aggressiveness in its monetary decision, and Japan is expected to react in a similar fashion. The turmoil in the financial market still seems to be prevalent. So larger banks may not take any big steps.

[marketrealist-chart id=1494835]

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Dollar tumbles

As expected, with the Fed’s decision, the US dollar once again slipped 0.54% on Wednesday and stood at 97. The fall in the US dollar gave some buoyancy to precious metals.

There are also concerns about a world oil supply glut weighing down oil prices for quite some time. Amid such concerns, gold, the flight-to-safety-asset, is poised to rise further.

UBS analyst Joni Teves said before the Fed’s meeting, “Our economists are expecting a rate hike in December, but if the Fed starts to sound hawkish now, that could weigh on gold. There are downside risks here.” Also, the holdings of the world’s largest gold-backed ETF, the SPDR Gold Trust (GLD), have seen an outflow of nearly 28 tons in the last three weeks.

Leveraged funds

Where gold could head now remains a question for investors. Meanwhile, miners are enjoying the rally in precious metals. Mining funds such as the VanEck Vectors Gold Miners (GDX) and leveraged funds such as the Direxion Daily Gold Miners Bull 3x ETF (NUGT), the Proshares Ultra Silver (AGQ) all rose on Wednesday by 4.7%, 13.6%, and 7.3%, respectively. The performance of these leveraged funds is often amplified compared to the metals themselves. The one-year performance of these leveraged funds is shown in the above graph.

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