How the Fed’s Decision and Oil Prices Are Impacting Gold
Precious Metals Are Happy to Say Goodbye to 2015
Rising rates
As the gold prices have fallen in 2015, all eyes are now set on the Fed and its announced “gradual” lifting of interest rates. The rising interest rates pressure gold, as they do not bear any immediate cash flows as Treasuries and equities do. Gold has long been considered a store of value assets without intermediary cash flows.
The higher the Federal Reserve raises interest rates, the worse it gets for gold investors. Higher rates hurt gold-based ETFs like the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU).
Gold mining stocks like Royal Gold (RGLD), GoldCorp (GG), and New Gold (NGD) have lost 42.7%, 37.8%, and 46.5%, respectively, during the past year. These three stocks make up 14.1% of the Market Vectors Gold Miners ETF (GDX).
Oil-led inflation
Crude oil has fallen significantly during the past year, which has also contributed to gold’s fall. This is because oil prices play a significant role in deciding inflation. Inflation and gold tend to move in opposite directions, as gold is used as a hedge against inflation. Crude oil dropped about 35% in 2015, which in part led to the 10% drop in gold.
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