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Which Direction Could Gold Take with Duality in the Markets?

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Market volatility and risk appetite

As newly elected President Donald Trump took office, the markets slowly started stabilizing. Equities (SPY) (SPXX) rose, and overall market volatility decreased (VXZ) (VIXY). His plan to increase spending on infrastructure gave a boost to investor sentiment, and investors seem more willing to increase their risk appetites.

Signs of stabilization in China also played a partial role in eliminating some investor risk concerns.

As we know, gold acts as a buffer to market risk and volatility.

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Dual impact on gold

Another important market phenomenon that investors often look at when investing in gold is inflation. Gold is used as hedge against inflation. A reduction in volatility could mean a downward swing for gold, and an increase in inflation could mean more demand for gold. That could be a two-way game for gold, and its directional move remains uncertain.

Uncertainty in gold also extends to silver, platinum, and palladium. Mining shares are also known to closely follow gold. Due to the rise in gold over the past month, Agnico-Eagle Mines (AEM), Primero Mining (PPP), Royal Gold (RGLD), and B2Gold (BTG) have risen 7.3%, 9.4%, 5.9%, and 21.6%, respectively. Combined, these four miners make up about 11.9% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).

In the next part of this series, we’ll look at the gold-silver ratio so we can understand the comparative performance of these two important precious metals.

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