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What Are the Global Implications on Gold?



OPEC and Draghi’s statements

Apart from the remarks by the members of the US Federal Reserve, other global factors have the potential to significantly impact gold.  Mario Draghi, president of the European Central Bank (or ECB), attempted to get its monetary policy back on the path to growth and to revive inflation.

On Wednesday, September 28, OPEC agreed to cut oil outputs modestly. This would be the first cut since 2008. The group’s leader, Saudi Arabia, appears to be softening its stance on archrival Iran amid mounting pressure from low oil prices. This cut caused the oil prices to jump as much as 6%. Gold is often seen as a hedge against oil-led inflation.

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Gold and VIX

One of the most important drivers 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).

Although 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 Barrick Gold (ABX), Newmont Mining (NEM), Pan American Silver (PAAS), and Coeur Mining (CDE) are among the companies that track gold’s price changes.

Other than the miners, mining funds like the Sprott Gold Miners ETF (SGDM) and the iShares Gold Trust ETF (IAU) have also witnessed falling prices due to losses in precious metals.


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