Increased Volatility Helps Gold and Gold-Based Investments
Why Did Janet Yellen's Testimony Cause a Run in Bullions?
The bling is back!
The crumbling stock markets in 2016 spiked the volatility. It added to gold’s shine. Fed Chair Janet Yellen’s testimony to Congress addressed the possibility that the markets could push the equity markets lower and gold higher. Increased volatility in the markets could cause investors to tilt more towards safe-haven assets like gold and silver.
Bling seems to back in fashion. Gold rose a whopping 14.8% in 2016. Silver rose 11.5% on a year-to-date basis. The rising volatility could send shockwaves to investors. This could result in a withdrawal of money from the equity markets. Withdrawn money is usually parked in safe-haven assets, like gold, during times of uncertainty.
The following chart shows peaking volatility since the start of the year. The rise in the volatility measure also resulted in an increased correlation between gold and the volatility indicator.
Miners rejoiced
The rise in gold also lifted up gold and other precious metal-based investments like the Market Vectors Junior Gold Miners ETF (GDXJ) and the leveraged Direxion Daily Junior Bull Gold 3X (JNUG). They rose by 37.8% and a whopping 146.2% during the past month.
Mining-based stocks like Newmont Mining (NEM), NewGold (NGD), and Hecla Mining (HL) rose by 45.7%, 47.5%, and 43.2%, respectively, during the past month.
The risk of US recovery keeps looming. The plunging markets also have a negative impact on the overall economic outlook. The labor markets are also watched closely to look for more guidance on the market and economic performance. Market stability often weighs down safe-haven assets like gold. Prevailing uncertain situations help buoy precious metals including gold and gold miners.
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