How Melting World Equities Markets Buoy Gold

As geopolitical risks emerged on the world stage, global stock markets wobbled and experienced selling pressures on Tuesday, April 11, 2017. On the US front, the Dow Jones Industrial Average (DIA) fell 6.7 points to close at 20,651. The S&P 500 (SPX) also dropped ~3.4% to close at 2,353, and the NASDAQ fell 14 points to close at 5,866.

Similarly, Japan’s Nikkei, Stoxx Europe 600 (STXX), and UK’s FTSE 100 fell 0.27%, 0.38%, and 0.23%, respectively on April 11.

The chart above illustrates the comparative performance of gold tracked by the SPDR Gold Shares ETF (GLD) versus the world index, which is tracked by the iShares MSCI World ETF (ACWI).

Risk-off sentiment

It seems that the risk-off sentiment gripped investors on April 11, which led to bullishness among precious metals.

Investors commonly look at gold as a haven in the event of a stock market downturn or economic uncertainty. When global markets fall, stocks and currencies can also fall.

Some investments become less desirable, and investors assume that gold could give them some stability. However, that assumption doesn’t always hold true, and investors can get burned. Interestingly, gold has a flat 12-month correlation with the S&P 500 over the past 45 years.

Miners swing high

The upward swing in precious metals seen on April 11 also buoyed precious metal mining stocks. Major miners Goldcorp (GG), Royal Gold (RGLD), First Majestic Silver (AG), and Alamos Gold (AGI) rose 2.8%, 3.5%, 6.0%, and 4.1%, respectively, on April 11.

Next, let’s see how the US dollar reacted to the rise of precious metals on April 11.