How Market Volatility Has Impacted Gold in 2016



Market volatility

Many investors around the world are predicting that falling confidence in central banks may eventually drive gold higher. Gold takes many of its cues from overall market volatility. Increasing unrest and market changes have been driving gold. Gold rises during economic tumult as was evident after the Brexit vote.

Overall market volatility and gold often show a strong relationship. In the graph below, volatility is depicted by the CBOE Volatility Index.

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Market events

Much of the market fluctuations are dependent on the stance that the Federal Reserve meetings take. Thus, gold’s movements are reliant on the same. Gold had a momentous surge in the first half of the year as the Federal Reserve stood firm on interest rates. The negative interest rates in Europe and Japan also added to the rally.

The massive gold rally also boosted gold and silver funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two have year-to-date gains of 17.9% and 25.6%, respectively. However, those gains have fallen in the past one month. These two funds have a 30-day trailing loss of 4.6% and 7.3%, respectively.

Mining companies such as Cia De Minas Buenaventura (BVN), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO) are among the companies that fell alongside precious metals. These four stocks fell 11.1%, 4.9%, 11.5%, and 12.5%, respectively. Combined, these four mining companies make up about 11.9% of the VanEck Vectors Gold Miners Fund (GDX).


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