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

Waiting for the Fed’s Decision: The Reaction of Precious Metals


Dec. 12 2017, Updated 3:20 p.m. ET

The Fed’s decision

The US dollar, depicted by the Dollar Index (or DXY) fell marginally on Monday, December 11, 2017, by 0.04%, ending up at 93.9. Although the US dollar has been the most important element contributing to the changes in precious metals, the upcoming December meeting of the Federal Reserve has taken all of investors’ attention.

Gold and silver fell 0.11% and 0.25%, respectively, for the day and closed at $1,245.10 and $15.70 per ounce, respectively. Platinum and palladium rose 1% and 0.23%, respectively, that day.

It’s almost certain that the Fed will raise interest rates at its December meeting. A rise in the interest rate is negative for precious metals since they’re non-yield-bearing assets. The higher interest offered on Treasuries, the lower the demand for safety assets such as gold and silver.

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Non-yield bearers

The above chart depicts the relationship between gold (IAU) (SLV) and the US two-year and ten-year rates of interest (SHY) (IEF).

Investors are expecting the Fed to increase the rate on Treasuries two or three more times in 2018, which could be even more negative for precious metals. Fed members have, however, raised concerns earlier about sluggish inflation numbers. Economic numbers from the United States are important to the Fed in determining the course of interest rate hikes.

Among the mining shares that fell on Monday, December 11 are Franco-Nevada (FNV), Randgold Resources (GOLD), Buenaventura Mining (BVN), and Alacer Gold (ASR), which fell 1.9%, 0.95%, 2.7%, and 1%, respectively.


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