Federal Reserve

As investors waited for the confirmation hearing from the new Fed Chair Jerome Powell, gold traded almost flat on November 28. Investors have kept a close eye on upcoming US economic numbers and the figures that could drive the Fed’s decision on the interest rate hike. Many of the Fed officials have been concerned about inflation numbers in the economy.

If inflation rises, it would be easier to increase the pace of the rate hikes. Interest rate hikes are often negative for precious metals. Higher interest on Treasuries might lure investors to invest in Treasuries instead of precious metals.

Fed and the Dollar Will Impact Gold and Other Precious Metals

Inverse relationship

The above chart shows gold’s performance compared to US two and ten-year interest (SHY) (IEF) rates. As the interest rate rises, it has a negative impact on gold and other precious metals (IAU) (SLV).

Besides the rate movements, investors are also watching the upcoming US tax plan. It will have a significant impact on the US dollar. The dollar is depicted by the DXY Index, which has fallen in the current year. The dollar and precious metals seem to have a strong inverse relationship. Precious metals are all dollar-based assets. The rise in the dollar has a negative impact on precious metal demand.

The rising dollar and interest rates could be detrimental for precious metals as well as mining funds and shares like Kinross Gold (KGC), Alacer Gold (ASR), Goldcorp (GG), and B2Gold (BTG).

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