Yield or no yield
If we look beyond the dollar influence on precious metals, we can analyze how the probability of an interest rate hike could influence precious metals and their miners. U.S. Treasury yields rose on Friday, peaking the yield curve as dealers reduced their holdings.
A Federal Reserve official said on Monday that he would back a hike in the interest rate in the next month despite caution over the low inflationary environment.
Precious metals and US interest rates are negatively related to each other as these metals are non-yield bearing assets. As the yield offered on Treasury rates keeps increasing, more investors could be interested in parking their money in yield-bearers. That could lead to a fall in the prices of gold and other precious metals.
Gold is also known as a famous hedge against inflation. As inflation rises, so does the demand for gold. However, a substantial rise in inflation doesn’t seem to be anywhere near.
Mining funds could also be negatively impacted by a possible interest rate hike in December. The PowerShares DB Gold ETF (DGL) and the Merk Gold ETF (OUNZ) have fallen 0.25% and 0.32%, respectively, on a five-day trailing basis.