Gold Versus Equities: What’s Going On?
The overall market environment plays a substantial role in the movement of precious metals. Soaring equities could lure investors to more risky investments, leaving behind safe-haven assets such as gold and silver. Gold and silver are famous safety assets that investors hold on to during rising unrest in the market.
The chart below shows the performance of gold (IAU) (GLD) compared to the SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P Index. If investors are looking for safety assets, gold can sometimes be a good option.
Correlation of equities and gold
During the last year, the correlation of gold to the S&P index was -0.50. That indicates that about 50% of the time, the S&P Index and gold could move in opposite directions. About 50% of the time, a rise in gold leads to a fall in the S&P Index, and a fall in gold leads to a rise in the S&P Index.
Although precious metal miners are part of the equities market, they usually tend to follow the directional move in precious metals. Mining companies Kinross Gold (KGC), Alacer Gold (ASR), AngloGold Ashanti (AU), and Yamana Gold (AUY) have risen during the past week. They have five-day trailing gains of 8%, 4.4%, 2.9%, and 0.75%, respectively. Combined, these four miners make up 12.4% of the fluctuations in the VenEck Vectors Gold Miners ETF (GDX).