What Knocked the Precious Metals Market on July 3?

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Part 6
What Knocked the Precious Metals Market on July 3? PART 6 OF 6

Is Gold Moving in Accordance with Equity Markets?

A key driver of the fall

One of the key drivers of the fall in precious metals on July 3, 2017, was the revival in the equity markets. As investors start showing interest in equities, the pulls of haven assets such as gold and silver are reduced.

While gold has an inverse relationship with the US dollar, equity markets also have a connection to the precious metal. Investors often perceive gold as a haven asset in the event of a severe equity market downturn.

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Presumably, when we experience a global market decline, stocks and currencies fall, and many investors seek refuge in precious metals such as gold and silver.

The chart above shows the comparative price performances of gold as depicted by the SPDR Gold Shares ETF (GLD) and the equity markets as depicted by the SPDR S&P 500 ETF (SPY).

Following metals, not equities

Interestingly, we can see that gold’s 12-month correlation with the S&P 500 over the past 45 years averages zero. Whether gold is a haven asset or just a teaser isn’t clear.

The mining shares that belong to the equities segment closely react to movements in precious metals rather than the overall market. Mining stocks Newmont Mining (NEM), Barrick Gold (ABX), Kinross Gold (KGC), and IAMGOLD (IAG) were all negative on July 3, 2017, an example of their following precious metals rather than equities.


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