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What Makes Gold Prices Vulnerable to the Stock Market?

Meera Shawn

What's Driving the Precious Metals Market?

(Continued from Prior Part)

Stocks and gold

Gold has gained about 18% on a year-to-date basis. But haven demands for gold seem to be endangered by the recovery of the equity markets. Gold has had alternate days of ups and downs, and its strength at the beginning of the year seems to be fading.

Gold fell approximately 1% on Wednesday, April 6, 2016. The fall was due to the recovery in equity markets. The dollar prompted some profit-taking after Tuesday’s rally. 

The past week’s data showed the US trade deficit widening more than expected in February. German industrial orders unexpectedly dropped in February. Britain’s economy appears to have slowed since the start of the year, according to a closely watched survey.

The MSCI World Index is an international equity index that tracks stocks from 23 developed countries. The index fell 1.4% on Tuesday, April 5. It was its worst day since early February 2016. Gold has seen the best quarterly performance in nearly 30 years.

Precious metal funds

The MSCI World Index is predicted by the iShares MSCI ACWI (ACWI). The changes in gold prices are evident in the SPDR Gold Shares (GLD). GLD has risen 16.7% on a year-to-date basis.

The uncertainty in the Markets has helped the haven demands for gold. It has also helped mining funds such as the SPDR S&P Metals and Mining ETF (XME) and the leveraged iShares MSCI Global Gold Miners (RING). The inversely related Direxion Daily Junior Gold Miners Bear 3X ETF (JDST) falls with the rise in gold. This fund has fallen about 85.5% on a year-to-date basis.

Next, let’s look at some global scenarios and how they play on precious metals.

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