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Reading Volatility and Its Impact on Gold

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Reduced volatility

As monetary policies across the globe refrained from tightening, gold got a boost. As we’ve discussed in the last few articles, precious metals often perform well amid monetary expansion. Though the Federal Reserve has remained dovish, gold currently seems to be in doldrums iregarding the direction of any further movements.

Gold’s 60-day volatility fell on September 26, 2016, to its lowest level since October 2014. The fluctuations and reduced volatility in gold also significantly affected precious metals mining funds such as the SPDR S&P Metals and Mining ETF (XME) and the Global X Silver Miners ETF (SIL). These two funds have witnessed year-to-date rises.

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Gold and VIX

The most important driver for gold lately has been the overall market sentiment. Market volatility often gives a positive kick to gold. Precious metals’ safe-haven appeal comes into play when investors look for safety in volatile times. Volatility in the chart above is depicted by the CBOE Volatility Index (or VIX).

Though gold and volatility are expected to walk hand-in-hand most of the time, they can also deviate, as we can see in the chart above. The FOMC (Federal Open Market Committee) meeting, the Bank of Japan’s meeting, and the fears surrounding Brexit all have significant effects on gold’s safe-haven appeal.

Mining shares can lose volatility when precious metals are in a conundrum. Mining companies such as Primero Mining (PPP), Agnico Eagle Mines (AEM), Royal Gold (RGLD), and Alacer Gold (ASR) are among the companies that track gold’s price changes.

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