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How Are Precious Metals Moving, and What's Playing Them?

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How Are Precious Metals Moving, and What's Playing Them? PART 1 OF 7

Why Gold and Equities Are Moving Together

Equities rose on Tuesday

The fall in gold on Tuesday, July 25, 2017, was most likely due to the rise in equities that same day. The stock market revived due to expectations that the Fed would provide more clues about its monetary policy during its two-day meeting.

The Fed’s statement could generate hope for the US economy and buoy investor sentiment, thus helping equities. The overall market sentiment and precious metals are inversely related. In the next part of this series, we’ll take a look at gold and the overall market volatility.

The S&P 500 Index is depicted in the graph below by the SPDR S&P 500 ETF (SPY). Gold is depicted by the SPDR Gold Shares (GLD).

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Correlation with the stock market

Gold is a haven asset, so it’s often expected to rise during times of turbulence in the equity markets. These two indexes invariably go in opposite directions. The S&P 500 index and gold have a negative correlation close to 0.21 (-0.21). That means that about 21.0% of the time, gold could move in the opposite direction of the S&P 500 index.

Most portfolio managers start to reshuffle their portfolios once equities perform well. During rising turbulence, gold is weighed heavily. During stable times, when equities could be on the rise, gold might be sidelined.

A look at gold and equity market performances shows that a falling stock market isn’t necessarily a catalyst for a major rally in gold.

Although mining shares most likely follow precious metals, they sometimes associate with the equity sentiment. Mining companies that saw an up day on Tuesday, July 25, 2017, include Alamos Gold (AGI), B2Gold (BTG), Royal Gold (RGLD), and Goldcorp (GG), which rose 4.9%, 3.8%, 2.2%, and 2.8%, respectively.

 
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