Will Gold Move with US Interest Rates?



Fed sensitivity

Though precious metal prices have been on an upswing over the past few weeks, the streak could end due to the increased probability of Fed rate hikes in 2018. Precious metals are highly reactive to fluctuations in US interest rates. The higher the interest rates on Treasuries, the lower the demand for non-yield-bearing assets like precious metals. If the Fed hikes rates soon, gold and silver could slide.

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

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Economic data

A higher GDP number and higher consumer spending could boost the possibility of more rate hikes in 2018, which would be detrimental to gold. Data released on Thursday, January 4, showed that non-farm employment change, which measures the difference in how many people are employed during the previous month, excluding the farming industry and government, was at 250,000, higher than the forecasted figure of 191,000. A positive number is better for the economy in general.

However, unemployment claims, or the number of individuals who filed for unemployment insurance for the first time during the past week, showed weakness at 250,000. The higher the figure, the worse it is for the economy. The Fed will keep a close eye on such economic indicators as it makes rate decisions.

Some of the miners that are also reactive to Fed decisions are AngloGold Ashanti (AU), Barrick Gold (ABX), Coeur Mining (CDE), and Wheaton Precious Metals (SLW). They have risen 4.7%, 3.7%, 1.1%, and 0.54%, respectively, over the past five days.


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