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Why Gold and Palladium Prices Diverged in January

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Gold and palladium

Gold futures for April delivery on COMEX rose by a whopping 5.2% in January. Gold lost approximately 10% in 2015, but it recovered almost 50% of this loss in January alone. Gold was on a winning streak, and January became the best-performing month for the metal in nearly a year. Gold, silver, platinum, and palladium all rose on the last trading day of the month—by 0.03%, 0.08%, 0.74%, and 1.3%, respectively. Palladium became the winning precious metal on Friday after losing almost 11.3% in January.

Gold’s rise is due to haven calls and a fall in palladium, which is itself most likely due to the industrial slump and prevailing economic weakness.

The chart below shows gold’s performance versus palladium in January. Gold is the best-performing metal in 2016 so far. Palladium is the worst performer.

Alongside the rise in gold prices, the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust (IAU) also rose 5.4% each in January. Their prices are mostly based on gold, and they’re seen as an alternative way to track gold prices.

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Miners’ performance

The best-performing precious metal equities have been South African miners AngloGold Ashanti (AU), Sibanye Gold (SBGL), and Gold Fields (GFI). These three stocks rose 20.6%, 46.2%, and 23.2%, respectively, over the past month. Together, they make up 9.5% of the VanEck Vectors Gold Miners ETF (GDX). GDX also rose about 4%.

The main support for these companies’ price increases is the recent weakness in the rand. The weak currency lowers their rand-denominated costs and the growing strength of the US dollar supports higher precious metal prices, enlarging their profit margins.

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