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How the Fed’s Minutes Played on Precious Metals

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Inflation concerns

On May 23, the Federal Reserve’s May meeting minutes gave some support to gold prices as the ten-year Treasury note (IEF) yield dropped almost 5.1 basis points to 3.0%.

In the last week, the interest rate peaked at a seven-day intraday high of 3.1%. A surge in the interest rate was negative for precious metals, and gold rebounded from the start of the day.

The meeting minutes outlined a general sentiment: inflation (TIPS) will continue to rise toward the 2% target, and the Fed could briefly let inflation run above its target level.

Gold is famously known as a hedge against inflation, and as the economy experiences inflation, investors may take shelter in haven assets such as gold (GLD).

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Gold could be in the weeds

The minutes also indicated that Fed officials remain determined to continue raising rates, though the approach will be gradual. Traders in the federal funds futures market see more than a 90% chance of a June rate hike, which could be followed by another in September. These rises could be negative for precious metals such as gold, as they’re non-yield-bearing assets, which means they suffer due to increasing interest rates.

It will be challenging to determine whether gold will tumble to fresh lows in 2018 or whether it will be backed by higher inflation and gain strength amid market uncertainty.

Most big mining companies, including Newmont Mining (NEM), New Gold (NGD), Yamana Gold (AUY), and Buenaventura (BVN), have fallen in the last month.

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