6 Jul

How Did Market Volatility Impact Gold?

WRITTEN BY Meera Shawn

Economic numbers

The markets had a boost of optimism on Monday, July 3, 2017, just before the July Fourth holiday. Economic data that came out included the ISM (Institute of Supply Management) Manufacturing PMI (Purchasing Managers’ Index), which measures the level of a diffusion index based on a survey of purchasing managers in the manufacturing industry. The measure was at 57.8, much higher than analysts’ expectation of 55.0. The higher figure blew up the equities and market sentiment in general.

As we know, precious metals are haven assets, and optimism in the market softens the demand for bullion.

How Did Market Volatility Impact Gold?

Market uncertainty

Another comparison for precious metals can be made with market volatility. Overall risk and uncertainty in the market are measured by the Volatility Index (or VIX). The higher the risk in the market, the higher the demand for precious metals (SGOL) (SIVR).

The VIX surged to 51.0% and touched $15.16 on June 29, 2017. That reading was much closer to its recent high of $16.30 on May 18, 2017. According to CFTC (Commodity Futures Trading Commission) data, large traders and speculators reduced their net short positions in the VIX on the same day.

We see a close relationship between gold and the VIX at the end of 2015 in the above graph. The increase in the index would be positive, not only for precious metals but also for mining stocks such as Kinross Gold (KGC), Agnico-Eagle Mines (AEM), Silver Wheaton (SLW), and Hecla Mining (HL).

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