This Is What Determines How Much Money Flows into Gold

Gold has seen a YTD (year-to-date) gain of almost 7% as of February 15, 2017. Silver, platinum, and palladium have also followed the same route and rose 12.4%, 11.5%, and 15.1%, respectively. The rise in the precious metals was most likely due to widespread uncertainty across the market.

Meanwhile, investments in the world’s biggest gold-based fund, the SPDR Gold Shares (GLD), have climbed about 5% during the past two weeks to 837 metric tons. Often, the money flowing into the famous gold-based funds like GLD and the iShares Gold Trust (IAU) depend on the direction that the precious metals take.

Precious metals mining shares have seen price falls in the past week. This has likely been due to the drop in the price of gold, despite other three metals being buoyant. Shares of Coeur Mining (CDE), IamGold (IAG), Pan American Silver (PAAS), and Yamana Gold (AUY) have seen a five-day trailing losses of 23.9%, 8.8%, 7.8%, and 7.5%, respectively. These four miners combined make up about 7.1% of the VanEck Vectors Gold Miners Fund (GDX).

The sentiment toward the precious metal market is less related to its fundamentals and, more often, coincides with the performance of the overall economy. But equity markets play significant roles in the determination of the direction that the precious metals can take.

Remember, the higher the risk appetite of an investor, the more willing she will be to take on risk, thus potentially preferring equity over gold. Similarly, if the financial market is slumping, investors would often rather park their money in gold and not worry. Overall market sentiment is also a major determinant in the money that flows into gold- and silver-based funds.