Gold Miners: Trading the Fed’s March Meeting
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Gold miner stocks have been caught in a strong downtrend that’s mirrored the recent move higher in interest rates. That’s one reason why the sector may be attractive to traders looking to position for a surprise in either direction when the Federal Reserve announces its decision on interest rates at the March meeting.
No doubt it’s been a tough run for bullish gold miner investors who thought strength in late 2022 would carry over into the new year. The NYSE Arca Gold Miners Index* has fallen hard since mid-January. When sectors are trending so strongly in one direction they naturally draw traders looking to play a reversal or continuation.
NYSE Arca Gold Miners Index (9/28/22–2/28/23)
Source: StockCharts.com
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Gold Miners Vs. Interest rates
There appear to be strong forces at work recently, pushing both gold and gold miner shares lower. In recent weeks, leading inflation data has come in hotter than expected while the economic indicators have been resilient. In response, bond traders are expecting the Fed may raise rates higher and longer than previously anticipated to fight inflation. Traders can monitor bond traders’ changing Fed expectations with the CME FedWatch Tool.
Rising interest rates are a traditional headwind for gold because the precious metal faces competition from higher-yielding bonds. And as a commodity, gold tends to be volatile and influenced by myriad factors such as recession fears, currency markets, and overall risk appetite.
The Fed’s March meeting seems to be the dominant short-term catalyst for gold miners since some of the sector’s largest names have already announced quarterly earnings recently. Colorado-based Newmont Corp. (NYSE: NEM), the largest component of the NYSE Arca Gold Miners Index (12.60% as of December 31, 2022), in late February said its fourth-quarter revenue fell 6% from the year-ago period on declining gold prices. Similarly, Barrick Gold Corp. (NYSE: GOLD), the second-largest stock in the index (10.17% as of December 31, 2022), recently said its fourth-quarter revenue dipped 8% from the fourth quarter of 2021. Still, the Toronto-based miner unveiled a $1 billion buyback program.
So with quarterly earnings mostly in the rearview mirror, gold miners could be driven mostly by the Fed and macroeconomic indicators like inflation in the near term. Therefore, traders should circle March 10 when the February U.S. employment report crosses. On the inflation front, February Consumer Price Index (CPI) data is scheduled to be released on March 14. In the main event, the Fed is expected to announce its decision on interest rates when the two-day meeting wraps up on March 23.
Playing a Bounce or Breakdown in Gold Miners
The Direxion Daily Gold Miners Index Bull (NUGT) and Bear (DUST) 2X Shares seek daily investment results, before fees and expenses, of either 200%, or 200% of the inverse (or opposite), respectively, of the performance of the NYSE Arca Gold Miners Index.
Gold miners tends to be a volatile sector already, so adding leverage in either direction may be appealing to traders looking for a reversal or continuation of the existing downtrend. With a Fed meeting looming and uncertainty over the outlook for inflation and a potential economic hard landing, traders may see some fireworks in gold miners in March.
* Definitions
- The NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver. The Index will limit the weight of companies whose revenues are more significantly exposed to silver mining to less than 20% of the Index at each rebalance date. The Index may include small- and mid-capitalization companies and foreign issuers. One cannot directly invest in an index.
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