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

Will Interest Rates Have a Substantial Impact on Gold?


Dec. 4 2020, Updated 10:50 a.m. ET

Federal Reserve decisions

The Federal Reserve is expected to raise the interest rate in its March 2018 meeting for what would be the sixth time since late 2015. Interest rate movement has historically been a crucial contributor to the movements of precious metals.
Precious metals are non-yield-bearing assets that suffer greatly when the yield offered on Treasuries rises. Similarly, a fall in the yield could provide support to non-yield-bearing assets.
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Economic data

On February 1, 2018, jobless claims, which measure the number of individuals who filed for unemployment insurance for the first time during the past week, were reported to be 230,000—much lower than the expected level of 237,000. A lower number is often beneficial for the economy. Preliminary unit labor costs, which measure the annualized change in the price businesses pay for labor (excluding the farming industry), rose 2%, more than analysts’ consensus expectation of 0.9%. The actual figure’s being higher than expected is good for the economy in general.
There’s the chance that the tightening of the interest rate will cause a fall in precious metals and mining-based funds and shares. The mining funds that have experienced price falls during the last week include the iShares MSCI Global Gold Miners ETF (RING) and the VanEck Vectors Gold Miners ETF (GDX). These two ETFs have fallen 2.4% and 1.8%, respectively, on a trailing-five-day basis.
The mining shares that also fell on February 1 included AngloGold Ashanti (AU), Hecla Mining (HL), Coeur Mining (CDE), and Pan American Silver (PAAS). These stocks fell 0.35%, 0.52%, 1.7%, and 0.37%, respectively.

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