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Precious Metals Are Whipsawed in April—Check the Spread Measures

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Part 5
Precious Metals Are Whipsawed in April—Check the Spread Measures PART 5 OF 10

How Precious Metals Reacted to Equities in April 2017

Slumping bullion

After seeing a continuous rise in price for about two weeks, gold has given up its mid-April highs and has started slumping. Gold futures for July expiration dropped almost 1.5% during the past five trading days. 

Gold touched a high of $1,297.40 per ounce on April 17, slightly shy of the $1,300 per ounce mark, due to the rising fear of political uncertainty, especially from North Korea and Syria.

[{"interval":86400,"data":[-0.4,-0.7,0.11,-0.3,0.11,null,null,0.66,0.03,1,-0.04,-0.84,null,null,0.42,0.86,0.64,0.06,null,null,null,-0.31,0.39,-0.52,0.14,0.17,null,null,0.71,-0.28,0.63],"units":"$","start":1490587200,"end":1493265600,"name":"SPDR Gold Trust Shs ETF (GLD)","metric":"Change from Open","source":"BATS Exchange","observation_start":null,"chart_type":"line"},{"interval":86400,"data":[1.69,2.05,0.55,0.82,-0.16,null,null,-0.47,0.53,-1.48,0.5,0.05,null,null,-0.02,0.16,-0.71,-1.13,null,null,null,1.46,0.15,-1.08,1.19,-0.66,null,null,-0.01,0.64,-0.11],"units":"$","start":1490587200,"end":1493265600,"name":"SPDR S&P 500 ETF (SPY)","metric":"Change from Open","source":"BATS Exchange","observation_start":null,"chart_type":"line"}]

However, these uprising fears seem to have now settled and the haven demand of precious metals also fell. Gold futures ended at $1,264.20 on April 26, 2017, 0.24% lower than the previous day. Silver and platinum also followed gold’s lead and fell 1.3% and 0.84%, respectively, on the same day. Palladium continued its rising streak, up 1.1%, and ended the day at $805.20 per ounce.

Risk versus safe assets

The chart above shows how equities and gold have been moving in different directions over the past month. The political uncertainty that gripped the markets had negatively impacted equities, as they are considered a risky asset. The chart shows the SPDR Gold Shares ETF (GLD) and the SPDR S&P ETF (SPY), depicting the price changes in gold and US equities, respectively.

Risky assets like equities and bonds often do not perform well during economic unrest. During turbulence, investors opt for secure assets like gold and silver.

Although precious metal mining shares belong to the equity part of the investment, they are more likely to follow precious metals, as their profitability depends on the metal prices. Among the major miners, Goldcorp (GG), New Gold (NGD), Newmont Mining (NEM), and Yamana Gold (AUY) have seen losses over the past few days, falling 2.5%, 4.4%, 1.6%, and 7.8%, respectively, on a five-day trailing basis.

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