Is Money Flowing Out of Gold and into Equities?

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Is Money Flowing Out of Gold and into Equities? PART 1 OF 4

Is Money Flowing Out of Gold and into Equities?

Gold and equities

Gold is likely heading for its fifth consecutive weekly loss. Fear that the Fed will raise rates is hurting gold. Rising rates negatively affect precious metals. Money is flowing heavily out of the bullion-based assets, and investors are leaning towards riskier assets like equities.

The below chart shows us the performance of gold tracked by the SPDR Gold Trust (GLD) alongside the performance of equities tracked by the SPDR S&P 500 ETF (SPY).

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Gold and equities usually have an inverse relationship, and the current correlation between these two is low. During times of rising uncertainty, investors often park their money in gold. During more stable times, riskier assets like equities tend to outperform gold.

2016 started with a lot of instability overall in world markets, which caused gold to jump. However, gains are now withering.

Miners sink

The negative impact also extends to mining stocks like Franco-Nevada (FNV), Silver Wheaton (SLW), Coeur Mining (CDE), and Barrick Gold (ABX). These four stocks fell 14.5%, 20.8%, 5.3%, and 14%, respectively, on a 30-day trailing basis. Together, these four mining stocks make up about 13% of the VanEck Vectors Gold Miners Fund (GDX).

It seems gold and mining stocks are taking hits from all possible directions and that 2017 could see more rate hikes than earlier expected. The possibility that the Trump administration could pump more money into the economy is further hurting gold.


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