How Closely Are Equities Tracking Gold?


Dec. 4 2020, Updated 10:52 a.m. ET

Global uncertainties

The uncertainty of the global markets has played a significant role in the price changes of precious metals in 2016. The major stock markets, US bond yields, and European bond yields slipped off their four-month highs amid uncertainty over the health of the global economy. This boosted precious metals over the past week.

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Gold, silver, platinum, and palladium have year-to-date gains of 19.1%, 25.7%, 4.2%, and 10.8%, respectively. Although the gains have been subdued over the past few months, most of the benefits are attributed to haven bids, especially those during the start of the year and surrounding the Brexit vote.

Gold’s performance can be observed using the SPDR Gold Shares ETF (GLD), and the performance of equities can be judged by the SPDR S&P 500 ETF (SPY).

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Equities and gold

Precious metals often run in the opposite direction of stocks. Whenever the risk appetite of investors is high, stocks tend to perform well. During a low-risk appetite environment, the haven bids for gold and other precious metals rise.

In addition to the effect of equities on precious metals, the statement by the Federal Reserve vice chair, Stanley Fischer, also affected these metals. Fischer noted that the US economy could face longer and deeper recessions if interest rates remain stuck at their current low levels. This relieved the demand for precious metals.

Mining companies belong to the equity segment of investments and are considerably more dependent on precious metal price movements. Mining shares such as B2Gold (BTG), Eldorado Gold (EGO), Royal Gold (RGLD), and Alacer Gold (ASR) have seen large year-to-date rises following increases in precious metal prices.


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