How Interest Rate Fluctuations Could Affect Gold



Non-yield bearers

Much of the attention in precious metal movements is based on fluctuations in the US interest rate. The Federal Reserve’s yields had recently risen, which led to a slump in precious metal prices. The greater yield on US Treasury causes precious metals to slip.

As precious metals are non-yield-bearing assets, the higher the yields rise (IEF)(SHY), the lower the demand for non-yield-paying assets. If more rate hikes are coming up in 2018, precious metals could slump more than expected. The iShares Gold Trust (IAU) and iShares Silver Trust (SLV) were down 0.31% and 1.1%, respectively, last Friday as gold and silver fell.

Speculative positions

According to the Commodity Futures Trading Commission’s data, large speculators reduced their net bullish positions in gold futures. We’ve seen a decline for three weeks straight in gold speculative positions. Before that, there was a rise in gold speculative positions for six weeks. As of Tuesday, February 13, there was a weekly fall of 15,271 contracts in gold from the previous week’s total of 190,877 net contracts.

Among the mining stocks that lost the most last Friday are Yamana Gold (AUY), Agnico Eagle Mines (AEM), B2Gold (BTG), and IamGold (IAG). They were down 9.6%, 4.4%, 4.9%, and 4.7%, respectively. These four miners together contribute 11.6% of the variations in the VanEck Vectors Gold Miners Fund (GDX).

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