How Have the Precious Metals Reacted to the Fed's Rate Decision?
Precious metals surge
Gold futures with April expiration climbed 2.9% on Thursday, March 18, closing almost $25 higher than the previous day’s close. Gold’s volatility rate took a fall from the high of 21.8% in February to approximately 15.7% on Thursday. Gold futures closed at $1,265 per ounce. The metal is trading at a premium of 11.5% to its 100-day moving average price of $1,133.70. Such a significant premium over the long-term moving average may suggest possible overvaluation of the asset.
The rise in gold was followed by the rise of other precious metals like silver, platinum, and palladium. These three metals rose 5.3 %, 3.2%, and 3.5%, respectively.
The growth in the precious metals was mostly likely due to the delay of the interest rate hike. The Fed had initially decided on four rate hikes in 2016 but has revised its plans to two rate hikes this year. The postponement of the interest rate hike gave some breathing room to the non-interest–bearing assets like gold and also other precious metal-based investments. Interest rates are inversely correlated to non-yield–bearing investments.
Miners have a mixed performance
The mining-based ETFs that surged on Thursday include the SPDR S&P Metals and Mining ETF (XME) and the Global X Silver Miners ETF (SIL). These funds rose 3.2% and 2.6%, respectively, on Thursday. Mining-based shares had a mixed reaction on Thursday. Among the biggest losers on Thursday within the Market Vectors Gold Miners ETF (GDX) were Gold Fields (GFI), AngloGold Ashanti (AU), and Eldorado Gold Corporation (EGO). These three companies fell 7.5%, 4.6%, and 4.8%, respectively, on Thursday. These three stocks make up 12.3% of GDX.
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