How Gold Reacted to Interest Rate Hike in December



Non-yield bearers

Besides the slump of the US dollar during 2017, the other most important and most talked-about indicator is the US interest rate. The rate hike from the Federal Reserve’s December meeting had a negative impact on the metals at the start of December. However, the jolt was expected, and the metals rebounded after that.

The chart below compares the performance of gold (GLD) to the US two-year and ten-year rate of interest (SHY) (IEF). The higher interest rates are known to diminish the appeal of non-yield-bearing assets like gold and silver. Investors could opt out of precious metals and secure investment in Treasuries under a high-yield scenario.

Article continues below advertisement

Expected results

After the December Fed meeting, the US dollar and the yields have both moved lower because 2018 projections are muted. The prediction of a rate hike is unchanged despite a consistent recovery in the US economy in the upcoming year. Markets are expecting the US dollar to gain some strength on tax reforms, which could be detrimental for precious metals.

The mining sector (NUGT) (JNUG) also felt price movement in precious metals. Among the gainers during the past week were Yamana Gold (AUY), Randgold Resources (GOLD), Kinross Gold (KGC), and IAMGOLD (IAG), which rose 16.7%, 2.7%, 5.1%, and 5.4%, respectively, on a five-day trailing basis.


More From Market Realist