Analyzing the Influence of Interest Rates on Gold



The Fed and gold

In this article, we’ll discuss the relationship of gold with US interest rates. A crucial factor that has been playing on the price fluctuations in the precious metals is the Fed’s decision to hike interest rates. The Federal Reserve has increased interest rates twice in 2017.

The trajectory of the rate hike is slowly moving upward. As we know, precious metals and gold are inversely related to each other. When the interest rate is higher for Treasuries, investors lean toward yield-bearing assets rather than non-yield bearers such as gold.

The increase in interest rates also causes US dollar to rise, which is again negative for precious metals and miners. The chart below is a comparison of the US two-year and ten-year interest rates (IEF) (SHY) against gold (GLD).

Article continues below advertisement

Miners follow

The Fed’s latest interest rate hike impacted precious metals before it even occurred. The probability of the Fed hiking rates again in 2017 may not be very strong after the weak employment data. However, there’s still a strong possibility of a few rate hikes in 2018.

As with precious metals, mining shares are also negatively impacted. Miners such as First Majestic Silver (AG), Randgold Resources (GOLD), Alamos Gold (AGI), and Franco-Nevada (FNV) have all witnessed downward determined prices over the past month.


More From Market Realist