The overall geopolitical environment has also had a significant effect on precious metals over the past few months. The tensions in North Korea gave buoyancy to the haven bids for these metals, and they surged. Besides these global concerns, the interest rates have also been influential in the price changes of precious metals. Major US bond prices fell on Friday, October 20, pushing the ten-year US Treasury yields up towards early October’s three-month highs at 2.4%. This happened after the Senate voted yesterday to approve President Trump’s push for significant tax cuts.
Interest rate impact
The above chart depicts the relationship between gold (IAU) (SLV) and the US long-term and short-term rates of interest (SHY) (IEF). Rising interest rates could turn out to be negative for precious metals. Asian and European stocks also traded higher on Friday.
Precious metals are also famous for their deviation from equity markets in general. As investors choose risky assets like stocks, the demand for gold and silver may diminish. Similarly, higher demand for safe-haven assets suggests risk aversion, which means investors are avoiding equities.
Though mining stocks belong to the equity segment, they react closely to gold and silver. Some of the miners that joined the slump on Friday are Gold Fields (GFI), Agnico Eagle (AEM), Royal Gold (RGLD), and B2Gold (BTG). These stocks were down 2%, 0.67%, 1.1%, and 3.8%, respectively.