Can We Establish a Relationship between Gold and the SPX Index?



SPX versus gold

The equity markets had a rough day on Monday, June 25. Such volatile and choppy days often bring safe-haven bids for gold. However, that didn’t happen, and we saw gold sliding along with other asset classes. Gold generally acts as a hedge against geopolitical tensions and unsteady returns, although this hedge didn’t hold strong in the short run.

The correlation between gold and the S&P 500 (SPX)(SPX-INDEX) is 0.18 on a YTD (year-to-date) basis. A positive correlation indicates that about 18.0% of the time, gold has moved in the same direction as the S&P 500 (SPY) since the beginning of the year.

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How mining companies reacted

The relative movement in gold is fairly steady and can be predicted by the iShares Gold Trust ETF (IAU). The primary reason behind the fall in global equities was the escalating trade tension between the United States and China, which also softened the US dollar. We’ll discuss the impact of the US dollar and gold movements in our next article.

Among the mining companies that had a rough week due to the declining prices of precious metals include Hecla Mining (HL), Eldorado Gold (EGO), IamGold (IAG), and Kinross Gold (KGC). These stocks fell 3.9%, 6.1%, 3.8%, and 3.4%, respectively, during the past five trading days. Although precious metal mining companies belong to the equity segment of the market, they tend to closely react to the fluctuations in precious metals.


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