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The Chinese Market’s Turmoil Fueled the Rise in Gold

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Jan. 6 2016, Updated 10:30 a.m. ET

Chinese turmoil

Chinese markets experienced turbulent tides on January 4, 2016, as the weak manufacturing data in the country spooked the stock markets. The trading activities on the bourses in Shanghai and Shenzhen halted after breaking the circuit fall. The CSI 300 (China Securities Index) tumbled a little more than 7% and triggered circuit-breakers. This is the biggest fall of the CSI 300 in nine years.

The fall in Chinese markets further pulled down the stock exchanges around the globe and bolstered demand for haven assets like bonds and gold. Gold prices rose by almost 1.4%. Gold futures for February expiry closed $15 higher than the previous day’s close. Gold touched the high of $1,083 per ounce on January 4, 2016, and closed at $1,075.2 per ounce.

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Miner performance

The rise in the price of gold also pulled gold-related ETFs higher. This included the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) as the two rose 0.24% and 0.91%, respectively, on Monday. The mining-based companies had a mixed reaction to the rise in precious metal prices on haven demands. Barrick Gold (ABX) and Hecla Mining (HL) rose 0.26% and 0.79%, respectively. Meanwhile, Newmont Mining (NEM) and Silver Wheaton (SLW) fell 0.70% and 1.6%, respectively. Together, these four mining stocks contribute 18.4% to the price changes in the VanEck Vectors Gold Miners ETF (GDX).

The rise in financial and economic instability often calls for a heightened demand for haven investments such as gold. However, the rise in prices due to haven-demands is majorly short-lived. The most important phenomenon impacting the prices of gold is the federal interest rate hike, as that dents gold’s demand and thus lowers its price.

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