When interest rates are raised, non-interest-bearing assets tend to take a hit. That was the dynamic behind the decline in precious-metals miner Newmont's (NEM +2.25%) stock on Wednesday. Investors were particularly eager to sell the shares after the Federal Reserve's (Fed) announcement that it had raised the target range for its key rate. Newmont closed the day nearly 2% lower.
Less precious than before
The Fed's increase of said target (by 25 basis points) didn't exactly come as a surprise, given the persistence of inflation. That's likely a key reason why precious metals (and the stocks of companies that specialize in them) didn't see a sharper fall on the news.
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In fact, the prices of both Newmont and its primary metal, gold, recovered slightly by the time the stock market's closing bell sounded.
Gold, silver, and several other high-value metals hit record highs earlier this year, and after plunging, they've recovered to some extent. Times of economic and geopolitical uncertainty -- like now -- tend to encourage investment in such assets, which are seen as a more secure store of value. The Fed's move will dampen such demand.
NYSE: NEM
Key Data Points
The price dampener
The Fed is walking the walk now with its hawkish stance, and that should put a fairly low ceiling on precious metals prices. We'll see if the rate hike cools inflation to a meaningful degree, though I have to caution that the effect may take some time.
With limited upside -- at best -- to precious metals in the foreseeable future, I wouldn't be eager to own such commodities now. We should also bear in mind that, for miners like Newmont, that's exacerbated by potentially higher costs for items like materials and even labor. So I'd also give the company's stock a miss.
