Current unrest in the global markets that has extended from China has reassured gold’s haven appeal. During 2015, macroeconomic and geopolitical events did little to move gold substantially. However, tensions in the Middle East, Chinese currency devaluation, and the equity rout that ensued all boosted gold.
Gold has risen about 5.2% in the current month after a whopping $15 trillion global selloff. Backed by gold price movements, the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust ETF (IAU) rose about 5% and 5.1%, respectively, since the beginning of the new year. ETF investments have jumped, and their value has risen by almost $3 million in 2016 alone.
Volatility and gold
The above chart shows the increased volatility in the markets, indicated by the S&P 500 VIX Short-Term Futures ETN (VXX) and compared to gold-based GLD and IAU. Holdings in global gold funds rose above 1,500 tons to the highest amount since November 2015.
The current stock market turbulence has helped gold, and investors have turned on the optimism in gold-based investments, but the Fed’s fear still hovers around gold. Though the recent Fed meeting showed no signs of liftoff, it’s keen on maintaining the gradual pace of raising the federal funds rate.
Mining-based investments may also be adversely affected once the Fed raises interest rates. Higher rates curb the appeal of gold, as it bears no interest. Stocks such as Royal Gold (RGLD), GoldCorp (GG), and Kinross Gold (KGC) may tumble when gold loses its shine. These three stocks make up about 15% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).