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How Precious Metals Are Related to Monetary Policies


Oct. 6 2017, Published 11:43 a.m. ET

Monetary policies

Positive US economic numbers also buoyed expectations of another interest rate hike this year. An interest rate hike would be negative for precious metals since they don’t bear any intermediary cash flows. Higher cash flows on any security lead to more and more investors putting their money in Treasuries and deserting precious metals.

The chart below depicts the movement in the United States of two- and ten-year interest rates and their relationship to gold.

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Federal officials

The expectation of monetary tightening is supported by Patrick Harker, president of the Federal Reserve Bank of Philadelphia, who said he’s still penciling in a rate hike in the current year and three for the coming year.

John Williams, president of the Federal Reserve Bank of San Francisco, has a somber view, implying perpetually low interest rates and a difficult hurdle for the Trump administration’s promised economic surge.

Investors are now looking forward to economic data on non-farm payrolls. The numbers are a crucial indicator of the country’s economic performance, which hints of further monetary policies.

The Global X Silver Miners ETF (SIL) and the VanEck Vectors Gold Miners ETF (GDX), which are mining funds, are also known to be negatively related to precious metals. Kinross Gold (KGC), Hecla Mining d(HL), Harmony Gold (HMY), and Iamgold (IAG), which are mining shares, have fallen in the last month.


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