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

How Closely Will Interest Rates Monitor Gold?


Nov. 29 2016, Updated 10:05 a.m. ET

Yields keep rising

Treasury yields have posted the highest two-week rise in more than five years. With the rise in the Treasury yield, the opportunity cost of holding gold is increasing. Investors would rather park their money in yield-bearing assets than in non-yield-bearing gold. Higher yields mean investors would rather secure their money in yield-bearing Treasuries than in non-yield-bearing gold.

Gold, the big brother of precious metals, has fallen more than $120 from its peak on November 9, 2016, following the US elections. The fall suggests optimism in the market expecting a potential interest rate hike. As we saw in the previous parts of this series, the chances of a rate hike are increasing, and thus precious metals could be negatively impacted further.

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Funds and miners are affected

The money flowing into popular funds such as the gold-based SPDR Gold Shares (GLD) has fallen drastically. The fund’s investors are withdrawing their capital in what’s been the most profound outflow since July 2013.

Another famous gold-based fund, the iShares Gold Trust (IAU), has also fallen greatly over the past month due to the fall in the price of gold.

Mining stocks that have also suffered losses over the past month include Aurico Gold (AUQ), Royal Gold (RGLD), B2Gold (BTG), and Coeur Mining (CDE). These four companies contribute about 7.5% to the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).


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