As gold prices have rallied this year, gold miners, which are a levered bet on gold, have surged. Year-to-date, the BMO Junior Gold Index (ETF) (TSX: ZJG) has gained 67%. However, in the last few trading sessions, ZJG has struggled.
In today’s trading, ZJG has dropped another 8%. The sharp pullback in ZJG has been caused by uncertainty over when the Federal Reserve will hike its benchmark interest rates. The Fed had hiked benchmark interest rates for the first time in more than a decade in December last year. At the time, the Fed anticipated four more rate hikes in 2016.
The Fed though brought down its expectations for rate hikes in 2016 to two as global markets saw extreme volatility at the start of this year. Market expected just one rate hike for the year and this boosted gold. But last week, the Federal Reserve released the minutes of its meeting in April. The minutes showed that the Fed was open to a rate increase in June itself. The Fed’s hawkish stance has changed the sentiment on gold. Gold prices have seen a sharp pullback and this might be a good time to exit ZJG.
