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How Unrest in Korea Affected Gold

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Unrest in Korea

Gold prices were around their highest level in nearly seven weeks on Monday, July 31. Gold futures for September expiration touched a high of $1,272.2 an ounce but ended the day marginally lower at $1,268.9 per ounce. The rise of gold was most likely due to the tensions in Korea.

A US ambassador said that the US, China, Japan, and South Korea needed to do more after Pyongyang’s latest missile testing. Such global tensions often have a positive effect on safe-haven assets like gold and silver. The gold-based iShares Gold Trust (IAU) was also trading slightly higher by 0.08% for the day. It has a five-day trailing gain of 1.2%.

Gold often has a positive correlation with overall market volatility. The more significant the market unrest, the higher the price of gold, as it is considered a safe-haven asset. Investors often want to park their money in assets that won’t lose money during market turbulence.

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Volatility Index

The above chart shows the comparative price performance of gold and the CBOE Volatility Index (VIXY) (VXZ). As seen during the start of 2016, there’s a clear correlation between gold and volatility. It’s not always certain that gold will react to market unrest, but the chances are that the two may surge together.

The mining stocks saw a mixed day. Major miners like Goldcorp (GG), New Gold (NGD), Newmont Mining (NEM), and Aurico Gold (AUQ) were trading higher than their previous day’s close. These four miners rose 0.61%, 3.7%, 0.3%, and 3.6%, respectively. Combined, these four miners make up about 15.9% of the fluctuations in the VanEck Vectors Gold Miners Fund.

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