How Is the Market Sentiment Playing on Gold?
Precious metals recovered from their 2016 losses in January 2017. However, as President Donald Trump entered the White House and speculation regarding his proposed plans increased, haven demand for precious metals rose. Gold has seen a year-to-date (or YTD) rise of almost 7%. Silver followed suit, rising almost 11% since the beginning of the year.
Gold investors are likely in a fix, as the overall sentiment favors the possibility of a price rise. Market uncertainty is the major reason for the optimism in gold. However, Trump’s plans to increase expenditure could provide a kick to inflation, playing negatively on gold (IAU). Market growth and stability are negative for the haven asset.
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VIX and precious metals
As shown in the above chart, the market’s volatility could give a positive bounce to gold. Gold’s correlation with market volatility, depicted above by the CBOE Volatility Index (or VIX), was high during 4Q15, when the first interest rate hike in almost a decade took place.
Most of the time, silver (SLV) also follows the same direction as gold. Volatility in the market may prove beneficial for silver’s haven demand, too.
The overall political environment has a major influence on precious metals and mining companies. The stance that the newly elected US president takes could dictate the direction of gold and its peers going forward.