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Equity Markets’ Role in Precious Metal Fluctuations

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Haven or not?

While gold (IAU) (SLV) has an inverse relationship with the dollar, stock markets also have a deep connection to the metal. Investors commonly perceive gold as a haven in the event of a severe stock market downturn. Presumably, when we experience a global market decline, stocks and currencies move downward. Riskier assets become less desirable, and investors assume gold will give them some breathing room.

Globally, there has been a sharp sell-out in equities (SPY) as US-North Korea tensions escalate. Asian markets have also experienced a sharp downturn, though the Japanese yen has strengthened as it is considered a haven during turbulent times.

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Equity markets may also be affected by the Fed’s stance and monetary policy decisions. Monetary tightening may result in reduced liquidity, and the US economy has a significant impact on other world economies. A reduced money supply could prompt equities to head south.

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Miners fall

Whereas precious metal mining companies are part of the equity sector, they are closely associated with precious metals. These companies’ balance sheets are based on the price of their core assets, of which precious metals form a major part. Mining stocks that have fallen over the past month include Royal Gold (RGLD), AuRico Gold (AUQ), Silver Wheaton (SLW), and Yamana Gold (AUY).

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