Plunge in US Stock Market Increases Demand for Safe Havens


Jan. 19 2016, Updated 5:54 p.m. ET

US stocks hammered

The US stock market has been hammered so far in 2016 as China continues to affect the worldwide markets. Uncertainty and volatility have been on the rise since the beginning of the year. For example, on Friday, January 15, 2016, the Dow Jones gave up 391 points for an aggregate loss of almost 1,400 points since January 1. Fear has likely gripped the markets, sending equity markets south. The carnage in the oil sector is also hammering equity markets as well as investors.

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So investors are again looking for safer investments. The prices for gold and silver rose 1.6% and 1.1%, respectively, on Friday, January 15. The iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) fell 1.2% and 0.38%, respectively, on Friday. The key to the rise in these calls for safe havens is the risk-aversion sentiment prevailing globally. In the graph below, you can see the performance of the SPDR S&P 500 ETF (SPY), which prices US stock markets against IAU.

[marketrealist-chart id=977490]

A sunny side for miners

The haven demands and the short coverings have sparked gold and silver, the crucial two precious metals. They also gave a temporary boost to companies in the precious metal mining business. But on Friday, January 15, miners had a mixed reaction to advancing gold and silver prices. Barrick Gold (ABX), Agnico Eagle Mines (AEM), and Silver Wheaton (SLW) rose 4.2%, 0.5%, and 0.54%, respectively.

Dampened market sentiment has left investors with no other alternative than to step back from stocks and invest in gold. The prices of all precious metals are likely on a seesaw, moving up and down from gains to losses as they take their prices from equities.


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