29 Jun

How Overall Market Risk Could Drive Gold

WRITTEN BY Meera Shawn

Market uncertainties

Precious metals were on the rise at the beginning of 2017. However, they slowly lost steam as the Fed buckled up and increased the interest rate. The overall market environment is an important determinant in the movement of precious metals. Gold added to its price during each month of 2017 except for June.

Political uncertainties include fears over what the Trump administration may do, the bailout of Italian banks, Syrian attacks, and Brexit negotiations, to name a few. These add to geopolitical tensions, which in turn give a push to gold.

When we analyze global concerns, we look at the CBOE Volatility Index (or VIX). You can see the comparison of gold (GLD) and the VIX (VIXY) (VXX) in the graph below.

How Overall Market Risk Could Drive Gold

Volatility or market risk and gold walk hand-in-hand, especially when there is increased unrest in the market. Turbulent times give a kick to gold as a safe-haven asset.

Market uncertainty will not only play on precious metals but also their mining stocks such as Goldcorp (GG), Newmont Mining (NEM), New Gold (NGD), and Iamgold (IAG).

Ongoing tensions

Ongoing geopolitical tensions have an effect on precious metals. These tensions currently include the shaky status of the US health care bill in the Senate and the White House’s warning on Monday that Syrian President Bashar al-Assad appears to be preparing for another chemical weapons attack on his own people. Also, the Bank of England tightened its controls on bank credit to more normal levels on Tuesday, June 27, deciding the risk had passed on a big hit to the economy and lending after last year’s Brexit vote.

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