Precious Metals Surge on FED's Dovish Meeting

The federal take on interest rates caused the yellow metal market to dry up. With uncertainty about the outcome of the Fed meeting, investors remained close on their investments and preferred to stay away from extreme long or short positions on the bullion. Gold traded at $1,107 on September 14, and silver traded at $14.36 an ounce. Below is a chart that depicts the change in volume for gold futures on COMEX (Commodity Exchange). A significant decline in volume can be seen prior to the FOMC meeting.

Lower gold volumes and prices also impacted gold mining stocks such as Kinross Gold (KGC), Royal Gold (RGLD), and New Gold (NGD). KGC, RGLD, and NGD together account for ~10% of the Market Vectors Gold Miners ETF (GDX).

Other gold mining ETFs such as the Sprott Gold Miners ETF (SGDM) and the SPDR S&P Metals & Mining ETF (XME) had also fallen prior to the meeting.

Gold prices likely showed a support level at $1,100, with a minimum of $1,100 on September 9. Gold closed at $1,117 an ounce on Thursday, September 17, following the FOMC meeting. Aggregate open interest in gold futures was similar to the previous week’s figure at 414,000 contracts—a 13% drop from mid-July figures.

The trading price of the gold-silver spread fell 2.05% and 0.5% on September 16 and 17, respectively, settling at ~$75 on Thursday, September 17. The historical volatility of the spread also increased on Thursday. A reduction in the spread signifies silver is getting stronger compared to the yellow bullion. Fed fund futures showed a 30% chance of an increase on Thursday, according to data compiled by Bloomberg. However, the optimism did not turn heads.

Continue to Next Part

Browse this series on Market Realist:

• Part 2 - Declining Inventories in the COMEX Warehouses
• Part 3 - Gold Surged: US Inflation Data May Dampen Fed Rate Hike Move
• Part 4 - Gold Investors’ Sigh of Relief with Delay in Rate Hike