Gold Gains On Fear Factor

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Includes: ABX, DUST, GDX, GDXJ, GG, GLD, GOLD, IAU, IWM, NEM, NUGT, OIL, PHYS, QQQ, SLV, UUP, VTI, WPM
by: Markos Kaminis

Summary

The nearly month-long slide in precious metals subsided yesterday.

Cascading oil prices finally stirred up broader investor concern.

The U.S. dollar started to soften, giving gold a break.

Capital may be starting to flow out of risky assets seeking safe haven in precious metals.

Whether it continues or not near-term likely has a lot to do with energy prices and relative fear caused along the risk spectrum.

In a recent report, I suggested gold should stabilize as it has more than one leg to stand on. The statement was relative to a multitude of factors weighing for gold against two recently lost supports. Well, gold finally got a leg up yesterday, as cascading oil prices finally weighed down equities. Gold seemed to benefit on dollar weakness and its alternative safe haven appeal as fear factored for risky assets.

5-Day Chart of GLD at Seeking Alpha
5-Day Chart GLD at Seeking Alpha

Percentage Price Changes on 06-21-17

SPDR Gold Trust (NYSE: GLD): +0.3%
iShares Gold Trust (NYSE: IAU): +0.3%
Sprott Physical Gold Trust (NYSE: PHYS): +0.3%
iShares Silver Trust (NYSE: SLV): +1.0%
VanEck Vectors Gold Miners (NYSE: GDX): +0.6%
VanEck Vectors Junior Gold MIners (NYSE: GDXJ): +1.6%
Direxion Daily Gold Miners Bull 3X (NYSE: NUGT): +2.8%
Direxion Daily Gold Miners Bear 3X (NYSE: DUST): -1.0%
Goldcorp (NYSE: GG): +2.6%
Newmont Mining (NYSE: NEM): +0.9%
Barrick Gold (NYSE: ABX): +1.0%
Randgold Resources (Nasdaq: GOLD): +0.6%
Wheaton Precious Metals (NYSE: WPM): +2.7%

The entire precious metals complex moved higher yesterday, a relief after a long slide that began in early June, post the sell-the-news testimony of Jim Comey. The slide was further served by the dollar serving FOMC policy decision and the Fed's still somewhat hawkish stance on policy reflected in its dot-plot forecasts.

5-Day Chart UUP at Seeking Alpha
5-Day Chart UUP at Seeking Alpha

Two days of down-ticks in the U.S. Dollar Index, seen here via the PowerShares DB US Dollar Bull (NYSE: UUP) chart, finally took some pressure off gold. But why did the dollar give way?

5-Day Chart OIL at Seeking Alpha
5-Day Chart OIL at Seeking Alpha

Cascading oil prices finally got dramatic enough to stir up concern in stocks, seen below in the action of the Vanguard Total Stock Market ETF (NYSE: VTI). This action was exaggerated further out the risk spectrum in small caps (NYSE: IWM) and in the Nasdaq (NYSE: QQQ).

5-Day Chart of Stocks (NYSEARCA:<a href='https://seekingalpha.com/symbol/VTI' title='Vanguard Total Stock Market ETF'>VTI</a>) at Seeking Alpha
5-Day Chart VTI at Seeking Alpha

Gold benefits from dollar softness, seen over the last two days. However, I believe it also got a leg up from capital flows out of risky assets into the perceived safe haven in precious metals.

Whether this continues near-term or not will likely have something to do with energy price action moving forward. Energy prices could get a lift today if the Leading Economic Indicators (LEI) data point shows strength in the economy. Economists expect 0.3% growth to be shown in the LEI's latest reading, so look for a better than expected result to serve stocks and hurt gold and visa versa. I covered this in my regular market preview this morning.

If the LEI data point disappoints investors, I expect gold's gains are solidified and the precious metals complex can continue higher on fear driven capital flows out of risky assets. For my regular work on precious metals and markets, readers are welcome to follow the column here at Seeking Alpha.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.