How Precious Metals Are Moving versus Market Indicators



Economic numbers

Precious metals’ reaction was also due to economic numbers indicating the health of the US economy in general. Last week, the CPI number—which measures changes in prices for goods and services purchased by consumers—was standing at 0.5%. This level was higher than the analyst expectation of 0.3%. The core CPI number measuring the change in the price of goods and services purchased by consumers, excluding food and energy, was at 0.3%—which was higher than the forecasted 0.2%.

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Retail sales, measuring the change in the total value of sales at the retail level, were -0.3%. This number was much lower than the expected 0.2%. These crucial economic indicators also impact the market’s overall volatility. The relationship between gold and market volatility is also unique. Gold is known to closely track uncertainty in the market.

Volatility and gold

The above chart shows gold and volatility’s tendency to move together. This trend was especially evident in 1Q16. The higher the unrest in the market, the greater the demand for haven assets like gold and silver.

Market unrest, depicted by the Volatility Index or VIX (VIXY), could also play on the US dollar. The dollar and gold are both perceived as havens, but they usually move in opposite directions. Volatility and gold tend to move together. However, that may not always be the case.

The VanEck Vectors Gold Miners (GDX) and Global X Silver Miners (SIL) have increased 3.8% and 8.7%, respectively, on a five-day trailing basis. Among the miners that also increased during this timeframe are Pan American Silver (PAAS), Yamana Gold (AUY), Coeur Mining (CDE), and Barrick Gold (ABX). They were up 5.7%, 1.3%, 13.1%, and 0.92%, respectively, on a five-day trailing basis.


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