After the US Federal Reserve raised interest rates by a quarter percentage point on Wednesday (March 15), gold rose above the $1,200-per-ounce mark.
Gold stocks and gold-related products were also on the rise, and the VanEck Vectors Junior Gold Miners ETF (ARCA:GDXJ) performed particularly well. It rose 11.5 percent that day, and over 64 million shares traded hands — that’s the highest volume in the ETF’s history.
The fund, which has a total net asset worth of $5.3 billion, seeks to replicate as closely as possible the performance of the Global Junior Gold Miners Index. As its name suggests, the index is intended to track the overall performance of the gold-mining industry.
— Charlie Bilello (@charliebilello) March 16, 2017
Wednesday’s gold price rise was surprising for some. In the lead up to the Fed’s announcement, many market watchers were concerned that a rate hike would negatively impact the yellow metal. However, it turned out that the hike had been priced into the market.
“Gold’s resilience could help strengthen positive yet still fragile gold sentiment,” Joni Teves, a strategist at UBS (NYSE:UBS) in London, told Reuters. By the end of Thursday, April gold had rallied $26.40, or 2.2 percent, to settle at $1,227.10; that’s it’s highest level since March 2.
“In addition to a general friendliness towards gold for its diversification and hedging properties, lingering uncertainty has likely prevented shorts from becoming aggressive in spite of the challenges that gold has faced in recent weeks,” Teves added.
Gold is up 7 percent year-to-date, spurred partially by safe-haven demand from investors concerned about Donald Trump’s presidency, elections in Europe and the Brexit process.
Many believe the yellow metal’s gains will only continue, and it’s likely that the Junior Gold Miners ETF will keep thriving as well. According to MarketWatch, it’s attracted inflows of $1.29 billion so far this year, and $416 million over just the past month. It has also risen over 30 percent in the last year.
But investors should nevertheless be prepared for some turbulence.
“Gold-miner stocks, which were among the strongest performers of 2016, have seen a massive shift in sentiment of late. That volatility will persist as the underlying commodity struggles for direction,” Goldman Sachs (NYSE:GS) analysts said on Wednesday.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.