Fed Rate Hikes & Plunging Platinum Bode Ill For Gold

Without a blowup in Greece, it's all bad news for the yellow metal in the short term.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

[This article originally appeared on HardAssetsInvestor.com and is republished here with permission.]

Gold's foray above $1,200 last week didn't last long. Prices quickly sold off on Monday and Tuesday following weekend news that Greece was ready to make concessions to secure aid from its creditors, potentially averting default at the end of the month.

Gold

 

Once again, the Greece drama is turning out to be much ado about nothing. Sure, there is still a chance that the two sides may fail to reach an agreement by the end of the month, but traders are betting that when push comes to shove, the main players will compromise just as they have repeatedly over the past few years.

If that happens, attention will turn back to the economy, currencies and interest rates. And on that front, it doesn't look good for gold.

Today Federal Reserve Governor Jerome Powell said that the central bank is likely to hike rates in September, and then again in December. As a permanent voting member of the Federal Open Market Committee, Powell's views are particularly pertinent.

The immediate reaction to Powell's comments was a spike higher in the dollar and interest rates, both bearish for gold.

Adding to gold's woes is the recent plunge in platinum and palladium prices. After being crippled by the worst strike ever last year, South Africa's platinum and palladium industry is roaring back. Output is expected to increase 20 percent this year, according to Johnson Matthey. A 14-year low in the South African rand against the dollar has benefited South African producers, but there looks to be no end in sight to the downtrend in prices.

Platinum could easily break the $1,000/oz level, with palladium falling in tandem.

If that happens, gold would likely be pushed lower as well. The yellow metal is currently trading at an 11 percent premium to platinum, which is the most since 2012.

 

 

There may be some more room for gold to outperform platinum, but sooner or later prices will feel the pressure.

Silver

 

Platinum

 

Palladium

ETF Holdings

Gold ETF holdings rose by 0.2 million, or 0.34 percent, to 51.1 million. Silver holdings fell fractionally to 625 million. Platinum holdings sagged by 58K, or 2.16 percent, to 2.62 million and palladium holdings increased by 3K, or 0.11 percent, to 2.96 million.

Key Ratios

The gold/silver ratio climbed to 74.4; the gold/platinum ratio edged up to 1.11; the gold/palladium climbed to 1.69 and the platinum/palladium ratio advanced to 1.52.

Currencies

The U.S. Dollar Index rallied to 95.6, while the EUR/USD exchange rate decreased to 1.1155.

Sovereign Debt

The German 10-year and U.S. 10-year yields rallied. The German 10-year yield was last trading at 0.9 percent, while the U.S. 10-year yield was last trading at 2.42 percent.

Against the German benchmark, yield spreads on PIIGS country bonds decreased. Portuguese, Italian, Irish, Greek and Spanish yield spreads were last trading at 1.81 percent, 1.2 percent, 0.71 percent, 9.68 percent and 1.16 percent, respectively.

Inflation

The U.S. Consumer Price Index was flat year-over-year in May, up from -0.2 percent in April. Meanwhile, the core CPI (which excludes food and energy) grew by 1.7 percent year-over-year in May, down from 1.8 percent in the previous month.

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.