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Risk-Reversal May Weigh Down Precious Metals

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Rattled markets

The recent snapback of the Chinese yuan and the stabilization of the equity markets have weighed down the haven demands of precious metals. Gold and silver took steep falls after the sharp rise in prices. Since the start of 2016, gold has been the best performer among raw materials.

Among the 24 commodities listed on the S&P GSCI (Goldman Sachs Commodity Index), gold has been the best performer followed by silver. Silver and gold have increased 14% and 10.8%, respectively, since the beginning of 2016.

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The beleaguered markets, rattled by the Chinese market turbulence and the oil rout, have pressed hard on the store of value assets and given it a boost. Similarly, as equities rose after the fallback and the risk appetite of investors increased, gold, silver, and other precious metals turned south. The market has mixed feelings about the performance of precious metals, and investors are likely eyeing the overall equity markets for further direction.

The recent increase in the risk appetite of investors has certainly weighed down precious metals. It may also adversely impact ETFs and miners that take their prices from precious metals.

Performance of miners and ETFs

The rise and fall of precious metals also had a significant effect on precious-metal-based ETFs such as the Global X Silver Miners ETF (SIL) and the VanEck Vectors Junior Gold Miners ETF (GDXJ). These ETFs have risen 33.6% and 32.4%, respectively, during the past one month.

Precious metal mining stocks with the best performance over the past one month are Coeur Mining (CDE), Kinross Gold (KGC), and Iamgold (IAG). These three equities rose 76.8%, 89.9%, and 69%, respectively, on a 30-day trailing basis. Together they make up 4.6% of the price changes in the VanEck Vectors Gold Miners ETF (GDX). GDX rose 36.2% during the same month.

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