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Precious Metals Surge as Equities Show Weakness

A Perfect Storm in Global Markets Causes Gold to Shine

(Continued from Prior Part)

Stocks versus gold

Shares in the US and European markets posted weakness on February 8, 2016. This extended to weakness in the Asian markets as well. The falls in the markets have led to gains for precious metals, especially gold, in 2016.

Above is a chart that shows the past month’s performance of gold, reflected by the SPDR Gold Shares ETF (GLD), versus the S&P 500 Index, reflected by the SPDR S&P 500 ETF (SPY). SPY fell about 1.4% on February 8, whereas GLD rose 1.3%. The rise in GLD underperformed the gains in gold futures, which surged 3.5%. Silver, platinum, and palladium also rose 4.4%, 2.8%, and 3.9%, respectively.

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SPY has fallen about 5% since the start of 2016, while GLD has risen 12.2% during the same timeframe. Over the past month, the directions of GLD and SPY have been inversely related. Losses in equities often end up as gains for gold, and gains in equities often cause gold to fall.

Precious metals miners

Mining-based companies that are part of the equity markets rightly take their price changes from changes in the prices of precious metals rather than the overall equity sentiment. The mining sector has outperformed the other market sectors.

Mining-based shares such as Barrick Gold (ABX), Newmont Mining (NEM), and Pan-American Silver (PAAS) have risen 41.4%, 39.9%, and 23.6%, respectively, during the past trading month. These three stocks together make up 13.8% of the price fluctuations in the Market Vectors Gold Miners ETF (GDX). These three stocks are trading at considerable premiums to their 100-day moving average prices.

Continue to Next Part

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