+ 0.61
+ 0.44%

Should You Buy The Rate-Hike Dip In Gold Miners?

December 16, 2016 10:50 am
Share to Linkedin Share to Twitter Share to Facebook Share to Print License More

Gold and gold stocks took a tumble this week following the Federal Reserve’s highly-anticipated interest rate hike. The SPDR Gold Trust (ETF) (NYSE: GLD) is down 2.1 percent this week, while the Market Vectors Gold Miners ETF (NYSE: GDX) is down 6.8 percent. Triple-levered inverse gold ETF Direxion Shares Exchange Traded Fund Trust (NYSE: JDST) is up 31.8 percent.

Traders looking to figure out how to time the rate-hike gold trade can look back to the trading action following last December’s rate hike. In the first three-plus weeks following the 2015 rate hike, the GLD traded up 4.2 percent, the GDX jumped 9.7 percent and the JDST fell 29.3 percent.

However, the tide quickly turned for gold. From January 7–19, the GLD dropped 2.0 percent and the GDX plummeted 16.2 percent. The JDST jumped 68.7 percent in that period.

After bottoming out on January 19, gold then rebounded in a big way. From January 19 to February 15, the GLD jumped 13.8 percent, the GDX spiked 51.0 percent, and the JDST plummeted 72.2.

Investors And Volatility

What can gold traders glean from last year’s action? First of all, if last year’s trading is any indication, there could be some major volatility in the gold market in the next two months. Of course, there was also major volatility in the S&P 500 as well during the same period last year.

However, despite some bumps in the road along the way, gold ultimately demonstrated major strength in the months following last year’s rate hike. Historically, commodities have out-performed in the first six months following the beginning of a Federal Reserve tightening cycle. That history suggests traders should consider buying any rate hike dips in gold in coming days.

Related Articles

3 Gold Miners ETFs You Probably Don't Know About, But Should Get To Know

Gold is one of this year's best performing commodities and that's a theme that could extend as exchange traded fund demand swells and as central banks debase currencies. read more

New 3X Leveraged Gold Miners ETNs Begin Trading

The price of gold spot hit an all-time high in August 2020, as did the SPDR Gold Trust (NYSE: GLD). read more

Should You Invest In Gold Right Now?

The price of gold is up 24.2% year-to-date in one of the most tumultuous years in history so far. With the possibility of a contested U.S. presidential election and a worsening pandemic in the coming weeks, things could become even more volatile on Wall Street, leading some investors to consider buying gold as a potential hedge against stock market weakness. read more

3 Gold ETFs Seeing Brisk Short Covering Activity

Thanks in large part to demand by investors opting for gold exchange-traded funds, gold is one of this year's hottest assets. However, the yellow metal, like any other security, doesn't move up in a straight line. The largest gold ETF enters Monday 6.39% off its 52-week high after trading modestly lower last week. read more