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Here Are the Scenarios That Decide Movements in Precious Metals

PART:
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Here Are the Scenarios That Decide Movements in Precious Metals PART 1 OF 5

Global Implications That Are Playing on Gold and Other Metals

Global indications

The market is most likely witnessing a bull run that we haven’t seen for the past few years. US Treasuries have risen due to the recent interest rate hike. The ten-year Treasury (IEF) hit its low yield of 1.3% in July 2016 but has since been on an upswing. The Swiss ten-year government bond and the Japanese bond have also begun rising.

The US equity markets (SPY) (SPX) have rebounded since President Donald Trump took office in January 2017. As expected, precious metals have fallen over the past few months. Gold and silver have fallen about 1.6% and 1.5%, respectively, on a 30-day trailing basis.

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Equities and gold

Investors commonly look at gold as a safe haven in the event of a severe stock market downturn. Presumably, when the global markets fall, stocks and currencies also fall. Some investments become less desirable, and investors assume gold will give them some breathing room. However, that doesn’t always hold true, and investors can get burned.

Typically, stocks have a high negative correlation with the US dollar. The US dollar tends to rally when equities are weak, thus putting downward pressure on gold. That can make gold and its related stocks move in the same rather than opposite direction as the dollar.

Gold-based stocks such as Silver Wheaton (SLW), Buenaventura Mining (BVN), Eldorado Gold (EGO), and Kinross Gold (KGC) mostly follow the gold market’s returns rather than the returns for the overall stock market.

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