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Gold’s Rising, Economies Not So Much

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Mar. 7 2016, Published 6:09 p.m. ET

Gold emerges strong

The current and ongoing global unrest has played a big hand in major economies around the world, which are set to decrease their interest rates and opt for monetary easing. Europe, Japan, and other nations are in a queue to lower their yields in order to boost their drowning economies. Meanwhile, as a dollar-denominated asset, gold relies much on the greenback for the move in its price. Another important link to gold is the yield for the US. After the US Federal Reserve lifted up interest rates in mid-December, gold and other precious metals dropped.

The rise in gold and silver in 2016 can be depicted by the direction of investments in the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV). These two indicators have gained by 7.3% and 2.9%, respectively, on a 30-day-trailing basis.

[marketrealist-chart id=1115501]

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The mining-based shares that also followed a northern route with gold and silver include Sibanye Gold (SBGL), Pan American Silver (PAAS), and Barrick Gold (ABX). These three companies have gained by 22.5%, 20.1%, and 17.9%, respectively, during the past one month. Together, these three companies contribute 10.7% of the price changes in the VanEck Vectors Gold Miners ETF (GDX). The GDX indicator itself has increased by 15.6% during the same time frame.

Global outlook

Investors are further looking to the Fed for directions with precious metals. China is another country that impacts gold significantly, being its biggest consumer. China is also among the largest gold producers and has started reporting gold reserves only since June 2015. China’s most recently published reserve figures show 57.5 million ounces at the end of February.

Canada is another significant producer of gold and has reportedly zeroed down its official precious metal holdings. The country sold off almost 21,851 ounces of gold coins in February 2016, and the reduction of these reserves may likely indicate investments in interest-bearing foreign currency assets.

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