Gold, Silver Down…But Not Out

New York (Nov 22)  As the stock markets and the dollar continue to strengthen, investors seem to bracing for a sharp selloff in precious metals.

Since president-elect Donald Trump’s win, SPDR Gold Trust ETF (GLD) saw eight consecutive days of outflows and the iShares Gold Trust ETF (IAU) saw 9 back-to-back days of outflows. The iShares Silver Trust (SLV) and the ETFs Physical Platinum Shares (PPLT) experienced outflows to a lesser degree.

Will rising rates dull precious metals’ luster?

Maxwell Gold, investment strategist for ETF Securities, says it’s not so clear cut. Historically, metals have fared well in negative real U.S. interest-rate environments and even when rates are in the 1%-2% range, gold and silver have posted gains albeit modest ones.

Gold says the selloff in gold, platinum, and silver is likely to persist until Dec. 14 when the Fed announces its decision. He thinks precious metal prices could boomerang as they did last year.It is likely overdue for the Fed to continue to raise rates, but it is becoming increasingly evident that the central bank is pursuing a negative real interest rate policy in order to stimulate employment and inflation. Once a rate hike has occurred, however, this trend typically reverses.

A similar path may play out this December with precious metals – in particular gold. Despite the threat of rate hikes, as the Fed continues to pursue a negative real interest rate policy through remaining reactive and data dependent to inflation, precious metals may continue to benefit.

Source: Barrons