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Stock Market Recovery Weighs on Gold

By

Jan. 13 2016, Updated 11:47 a.m. ET

Geopolitical tension

Gold futures for February delivery fell 1% in yesterday’s trade following the stabilization of the equity markets around the world. Gold fell about $10 from the previous day’s close of $1,085.2 per ounce. Silver prices also fell 0.83% to close at $13.7 per ounce.

 

The S&P 500 Index rose about 0.8% yesterday. The European market also saw a brighter day as the stock markets rallied after the recent plunge. The Chinese currency, which caused the market turmoil, also stabilized for the third straight day. Gold has risen about 2.2% since the start of the year due to the volatility in the markets extended by the yuan’s devaluation and further global concerns in North Korea and the Middle East.

The chart above maps the historical performance of the S&P 500 Index against the performance of gold. The S&P 500 Index is reflected in the performance of the SPDR S&P 500 ETF (SPY).

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Miners plunge

Geopolitical tension has led to the fall of stocks but has given a lift to gold and gold-based stocks and ETFs. However, the pullback in stocks proved harmful to gold ETFs, which fell in yesterday’s trade.

The Global X Silver Miners ETF (SIL) and the leveraged Direxion Daily Gold Miners Bull 3x ETF (NUGT) plunged 4.7% and 6.4%, respectively, yesterday. They have seen trailing-five-day losses of 8.3% and 9.6%, respectively. Most of the mining-based stocks also fell as a result of the weakness in the bullion markets. Eldorado Gold Corporation (EGO), Royal Gold (RGLD), and Silver Wheaton Corporation (SLW) fell 19.2%, 7..2%, and 5%, respectively, in yesterday’s trade. These three stocks together have a weight of 13.3% in the VanEck Vectors Gold Miners ETF (GDX).

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