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These 2 Factors Could Significantly Affect Gold


Oct. 31 2017, Published 7:37 a.m. ET

Fed chair appointment

A crucial factor that could potentially move precious metals is the decision about the next chair of the Federal Reserve. There are two candidates that US president Donald Trump seems to have shortlisted for the position: Federal Governor Jerome Powell and Stanford University economist John Taylor. There are rumors that the appointment of John Taylor as the Fed chair could lead to faster-than-expected interest rate hikes in the US, which could lead to strength in the US dollar and a fall in precious metals. Precious metals are non-yield-bearing assets that react negatively to higher cash flows offered on Treasuries. More and more investors could opt for Treasuries, causing gold and silver to lose strength.

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Gold hedge

Another critical factor that will likely affect the Federal Reserve’s rate hike decisions is inflation. The inflation numbers remain a cause of concern for policymakers. Gold is often considered a hedge against inflation, and investors are more likely to opt for gold in a high inflationary environment.

Inflation figures (TIP) could have a dual impact if they rise significantly. While a rise in inflation is positive for gold, an increase in interest rates is negative. Therefore, this scenario could lead to a somewhat flattened price slope for gold in the coming months. Other precious metals (SLV) usually follow the direction of gold (IAU). However, their fundamentals could also significantly influence them.

Among the precious metal mining companies that saw an up day on Friday along with gold are New Gold (NGD), Aurico Gold (AUQ), Kinross Gold (KGC), and IAMGOLD (IAG).


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