How Will Gold Respond to Rising Equities?


Feb. 16 2017, Updated 3:35 p.m. ET

Equities climbed

In this article, let’s look at the impact of the Fed chair’s speech on the equities market. The hawkishness of Yellen’s statement boosted the US dollar as well as global stocks. The MSCI All-Country Index (ACWV) was trading 0.2% higher at $442.1 on Tuesday, February 14. This is the highest mark it has seen since May 2015. The Chinese, Japanese, South Korean, and Australian indexes were also higher on the same day. The S&P Index (SPY) (SPX) (SPX-Index) has been rising for six straight days.

The overall sentiment in the equity market plays a significant role in the determination of the price of the precious metals. The below chart shows us the relative performance of these two assets.

[marketrealist-chart id=1924058]

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Mining shares

The higher the returns from the equity market, the higher the predicted risk appetite and the lower the demand for risk assurance. Gold (IAU), as we know, is a haven asset, and its demand usually rises during uncertain times. If we look back to the 2008 crash, investors started swiftly transferring their money from equities to precious metals. After that, gold reached an all-time high.
If equities start performing better under President Donald Trump, the chances are that haven demand for gold will be negatively impacted.
Though mining companies such as Alamos Gold (AGI), First Majestic Silver (AG), Coeur Mining (CDE), and Pan American Silver (PAAS) are part of the equity market, they may react more strongly to movements in precious metals.

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