How Will the Fed Meeting Affect Precious Metals?



FOMC meeting

Besides the dollar changes, investors are also closely watching the ongoing Federal Reserve Open Market Committee or FOMC meeting for a directional change in precious metals. The markets may take clues from the pace of monetary policy tightening.

Experts widely expect that interest rates will remain unchanged at the meeting, but December could see a rise in rates. An increase in interest rates tends to harm gold and silver and other precious metals, as they’re all non–yield-bearing assets. If a higher interest is offered on Treasuries, it’s more likely that market participants chose Treasuries over gold.

The above chart shows the relationship between gold (IAU)(SLV) and the US two-year and ten-year interest rates (SHY)(IEF).

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Market expectations

Experts widely expect that the US central bank will be trimming its balance sheet by purchasing bonds. However, all eyes are glued to the decision. Asian markets dropped on Tuesday as the outlook for the Federal Reserve remained in the doldrums.

Often uncertainty and unrest in the markets give a kick to precious metals. Just like its inverse relationship with the Treasury yield, gold also has an inverse relationship with market volatility.

Among the mining companies that saw an up-day on Tuesday after the fall over the past few days are Agnico-Eagle Mines (AEM), Gold Fields (GFI), Newmont Mining (NEM), and Aurico Gold (AUQ).


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