How Do Economic Concerns Impact Precious Metals?
Not only do US economic concerns impact precious metals, the stance of other major economies also play an important role in determining their prices. The Brexit concerns in 2016 were crucial in supporting precious metals. Similarly, other such concerns regarding Britain’s economy could also impact precious metals.
Mark Carney, governor of the Bank of England, faced a challenge from lawmakers on February 21, 2017. The way in which Bank of England changed one of its fundamental assumptions about Britain’s economy helps it justify keeping interest rates at record lows.
The concerns regarding the nearing elections in France were eased with the rise of the euro (FEZ) against the US dollar (UUP). The dollar slipped against major currencies after the delay in a possible interest rate hike.
World index and gold
The above chart is a depiction of the changes in the price of the Vanguard Total World Stock ETF (VT) and the SPDR Gold Shares ETF (GLD). VT tracks the performance of world indexes and thus, the overall sentiment of investors around the world.
As a common haven asset, gold is closely tied to the performance of the overall economy. As other assets in the economy become riskier, the more demand there is for gold and silver.
Japan is witnessing diminishing monetary stimulus that could boost the price of gold. Monetary stimulus in the economy and the price of gold often are inversely related to each other.
Mining shares have had some relief during the past month as precious metals recovered after their 4Q16 slump. Among the mining stocks, Goldcorp (GG), IamGold (IAG), Silver Wheaton (SLW), and First Majestic Silver (AG) have seen rising prices over the past 30 trading days.