No hike for September
The markets have been affected by the probability of an interest rate hike by the Federal Reserve. Precious metals take much of their price fluctuations from this probability as well. The likeliness of an interest rate hike by December 2016 is around 55%, down from around 60%, according to CME Fed Fund Futures.
The Fed’s recent decision to keep the rate of interest unchanged between 0.25% and 0.5% has affected precious metals, but only slightly. The further delay in the rate hike gave a breather to precious metals, as they bear no interest.
Precious metals such as gold and the US rate of interest offered on Treasuries have a close inverse relationship. A rate rise often sets metals rolling, while a delay often keeps them buoyant or causes them to rise in price. The above chart is a depiction of the US Treasury two- and ten-year rates of interest along with gold’s price.
Funds and miners
Alongside the fall in gold, gold-based funds such as the Swiss Gold Shares ETF (SGOL) and the iShares Gold Trust ETF (IAU) also tumbled. These funds are often seen as gold trackers, carefully keeping watch on gold’s movements and reacting accordingly.
Mining companies such as Sibanye Gold (SBGL), Gold Fields (GFI), AngloGold Ashanti (AU), and Hecla Mining (HL) also keep a close watch on precious metals’ movements, especially the movement of gold and silver.
According to the data released by the Commodity Futures Trading Commission, net long gold positions on COMEX fell 12% to 213,000 contracts in the week ended September 20, 2016. Earlier, net long contracts were close to 270,000. September’s level of bullish open positions in gold seems to be the lowest it’s been since July.