uploads///Gold versus US Two and Ten year Rate of Interest

How the Fed Chair Pick Could Affect Gold

Meera Shawn - Author

Nov. 1 2017, Updated 1:18 p.m. ET

Fed chair selection

On Tuesday, as the Bank of Japan kept its monetary policy steady, investors shifted their attention to other central bank meetings. The bank has slightly cut its inflation forecast for the current fiscal year.

Much of the market’s focus is on the Fed and US president Donald Trump’s pick for its next chairperson. Sources in the market suggest that Trump is likely to pick Fed Governor Jerome Powell as the next head of the US central bank. Powell is seen as being more dovish on monetary policy than Stanford University economist John Taylor, another top pick for the position.

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Non-yield bearers

The above chart shows how gold has reacted to changes in two-year and ten-year US interest rates (SHY) (IEF). As precious metals are non-yield bearing assets, investors may lean towards yield-bearing Treasuries amid higher interest rates. With their desertion of precious metals, their prices fall. The ongoing political tensions in Catalonia could also lead to a rise in demand for gold, a haven bid.

Mining funds such as the VanEck Vectors Gold Miners ETF (GDX) and the Sprott Gold Miners ETF (SGDM) saw a down day on Tuesday alongside gold, falling 1.2% and 1.1%, respectively. Mining stocks that lost the most on Tuesday include Eldorado Gold (EGO), Harmony Gold (HMY), New Gold (NGD), and AngloGold Ashanti (AU).


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