What Can You Learn from the Recent Gold Price Swings?

After getting a good start to the year—driven by strong demand from Asia, the Greek crisis, and the Swiss currency cap removal—gold prices started pulling back in April. In April, global uncertainty started receding and major economies faced weak inflation. Finally, the temporary resolution of the Greek crisis removed a major overhang.

Since then, the Fed rate hike decision has been the single most dominant factor affecting gold prices. More recently, the better-than-expected data out of the United States has rekindled the hopes of a Fed rate hike in December. This is negatively affecting gold prices and gold miners’ stocks.

Gold stocks are also in for a roller coaster ride, along with gold. Because of gold miners’ operating leverage, their stock prices usually fall faster when gold prices are falling. This works the other way too. While gold prices (GLD) have fallen by 10% year-to-date (or YTD). In the same period, the VanEck Vectors Gold Miners Index (GDX) has fallen 28%. The fall in GDX is led by senior gold miners including Barrick Gold (ABX), Goldcorp (GG), Kinross Gold (KGC), and Yamana Gold (AUY). They fell 32%, 37%, 33%, and 48%, respectively.

Gold prices are affected by a number of variables. In this series, we’ll look at the following factors that investors can track to get a sense of gold prices’ direction. These factors include:

• real interest rates
• the US dollar
• Asian gold demand
• central bank gold holdings
• government indebtedness
• geo-political tensions