uploads///Gold price versus Volatility Index

How Are Precious Metals Reacting to Market Volatility?


May. 10 2018, Updated 8:56 a.m. ET

Iranian and Korean tensions

Besides the rise and fall in the US dollar, another crucial factor affecting precious metals price changes is overall market volatility. Recently, when the United States withdrew from the Iran nuclear deal, the markets seemed to breathe a sigh of relief. Also, the geopolitical issues in the Korean Peninsula seem to have subsided. We also saw North Korea free three American detainees just ahead of talks between President Donald Trump and Kim Jong Un.

These factors together caused haven bids for precious metals such as gold and silver to fall. Market volatility, depicted by the CBOE Volatility Index (or VIX), has also declined over the last month.

The chart above compares the performance of gold to the market’s volatility.

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Volatility and gold

During the start of 2018, we saw many uncertainties in the market, such as the US-China trade war, Syrian unrest, and North Korean tensions. All these factors combined gave a push to precious metals, especially gold.

Because gold is considered a haven asset, market unrest and uncertainty tend to make its price rise. Investors often opt for safe havens such as these when the market gets unstable and geopolitical tensions rise. We can see that volatility and gold have walked almost hand in hand in the last month.

Despite the choppy market for gold during the last month, most mining funds have managed a few gains. The Alps Sprott Gold Miners ETF (SGDM) and the iShares MSCI Global Gold Miners ETF (RING) have risen 0.83% and 0.78%, respectively, in the last month.

Mining shares such as Royal Gold (RGLD), B2Gold (BTG), First Majestic Silver (AG), and New Gold (NGD) have risen 3.5%, 4.8%, 9.8%, and 1.2%, respectively.



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