ETF holdings rise
In addition to the rise in the interest rate and the movement of the US dollar, the equity market is also affecting precious metals. As volatility in the market spikes, the demand for gold revives. So far in 2018, gold has risen 1.1%, and silver has fallen 3.9%. According to data by Reuters, gold holdings for ETFs have risen by almost 17 tons, or 1%, since mid-February.
The chart below shows the performance of gold depicted by the SPDR Gold Shares (GLD), which fell 2.1% on Thursday, March 1, compared to the S&P 500 Index, depicted by the SPDR S&P 500 ETF (SPY) (SPX-INDEX).
Last week, after President Trump said he would impose tariffs on steel and aluminum, fears of possible trade wars emerged. It also impacted the price of precious metals. Since precious metals are haven assets, the imposition of these tariffs could push them higher. Anything that could trigger uncertainty in the markets could lead to higher gold and silver prices.
Trade wars could mean a spark in inflation and lower growth, which could very well encourage the Federal Reserve to increase interest rates multiple times in 2018. If the pace of interest rate hikes slows down, it would be beneficial for gold. Any additional unrest in the markets could further give gold a boost. So if trade wars do result from the tariffs, it could be a boon for gold.
Mining shares that retreated on Friday despite the revival of precious metals, including Sibanye Gold (SBGL), Gold Fields (GFI), Agnico-Eagle Mines (AEM), and AngloGold Ashanti (AU), which fell 1.3%, 1.3%, 1.4%, and 0.21%, respectively.