Equity Markets Rejoice: Why Did This Put Gold in Motion?



Stocks and gold

Equity markets’ performance sometimes shows a strong connection to precious metals. However, the relation isn’t always exact. When financial markets are in extreme trouble, gold often emerges as a safe-haven asset. Similarly, during times of rising equities, gold could underperform. Precious metals’ opportunity cost rises after alternative investments surge. Precious metals are non-yield bearers.

Gold’s downward movement has been slow but visible. Gold lost a marginal 0.1% on a five-day trailing basis. Gold may find some technical support at $1,280 and lower at $1,250.

Gold’s performance is depicted by the SPDR Gold Shares (GLD) and the performance of world equity markets by the iShares MSCi ACWI Index ETF (ACWI).

The following chart shows the performance of world equity markets versus gold over the past year.

[marketrealist-chart id=1388885]

The risk that the United Kingdom might leave the European Union is likely priced in the Market, but the odds remain that the Brexit may not take place. Under such a situation, stocks excelled along with silver and platinum.

Article continues below advertisement

Miners fell

Although gold fell marginally on Monday, silver, platinum, and palladium increased. These three precious metals rose 0.59%, 2.2%, and 3.4%, respectively. Palladium didn’t follow gold. Instead, it followed the broad market trend.

The miners that fell despite the gains in gold include Barrick Gold (ABX), AngloGold Ashanti (AU), and Kinross Gold (KGC). These three stocks fell 1.7%, 1.1%, and 2%, respectively, on Monday. Together, these three miners account for 14.3% of the price changes in the VanEck Vectors Gold Miners Fund (GDX).


More From Market Realist