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Upcoming Interest Rate Hikes and Their Impact on Gold

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Upcoming rate hike and gold

Precious metals witnessed some downside pressure on Wednesday, March 14, 2018. Gold futures for March expiration tumbled 0.11% and closed at $1,324.40 per ounce after rebounding from the day’s low of $1,322.20. Silver also fell 0.56% and ended at $16.5o. Platinum fell 0.6% and ended at $960. Palladium fell 0.69% and ended at $988.50 per ounce.

Overall, the movement in precious metals was slow, and lower prices hinted at a rebound in the US dollar after Tuesday’s slump. It seems likely that the upcoming Federal Reserve meeting next week will play on precious metals. The hike in interest rates seems to already be priced into the market.

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Historically, we’ve seen that precious metals are negatively related to U.S. Treasury rates, although the relationship is not very strong. Often, we assume that the rise in yield could attract investors to park their money in higher yield-bearing assets, thus deserting bullions, which are non-yield bearers.

Impact on funds and miners

The markets have been looking for clues that could impact the Fed’s decision to raise rates. If the Fed hikes interest rates next week, we might see that precious metals have already priced in the hike and could fall. However, precious metals have been known to rebound within a day or two after a rate hike.

The famous gold- and silver-based funds, the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV), were almost flat on Wednesday. Mining companies that joined the fall in precious metals on Wednesday include New Gold (NGD), Gold Fields (GFI), Harmony Gold (HMY), and Hecla Mining (HL). They fell 2.9%, 2.3%, 2.7%, and 1.7%, respectively.

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