What’s Boosting the Current Rise in Precious Metals?
Pessimism gone wild?
As President Trump’s and House Speaker Paul Ryan’s proposed healthcare replacement bill failed to launch on Friday, March 24, pessimism among investors spread throughout markets, and most major stock indexes suffered. The Dow Jones industrial average plunged ~126 points that afternoon, marking the worst week for stocks since the week before the Republican party won both houses of Congress and the White House on November 8. The S&P Index (SPX) also fell, though it later recovered.
What appears to have happened is that this first major plan to repeal and replace President Obama’s Affordable Care Act failed market expectations, and so investors moved out of the risky assets like equities and secured positions in haven assets like gold (GLD).
Markets were likely witnessing a bull run immediately following Trump’s surprise election victory, and then US Treasuries, the rising rate of interest, and Trump’s pro-growth policies were all boosting investor confidence since November. US equity markets (SPY) (SPX) also rose after Trump took office in January.
Equities and gold
Investors commonly look at gold as a safe haven, particularly in the event of a severe stock market downturn. Presumably, when the global markets (ACWI) 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.
Gold-based stocks such as Silver Wheaton (SLW), Alacer Gold (ASR), IamGold (IAG), and Harmony Gold (HMY) mostly follow the gold market’s returns rather than returns in the overall stock market. Notably, these four miners make up about 7.4% of the Vaneck Vectors Gold Miners (GDX).