Global Macro: What Influences GDX
NEW YORK ( TheStreet) - Gold-mining stocks have experienced some wild price swings over the past few days on news about U.S. monetary policy, leading traders to question what exactly influences the mining index?
Both the price of gold and the strength of equities determine the direction of gold-mining stocks, and through regression analysis, we can see which factor plays a bigger role.
Equities have been the relative leader, while gold is the second strongest and gold miners the weakest. That is odd considering the equity portion of gold-mining stocks should make them stronger than the physical commodity of gold.Equities have been aided by the belief that the economy is on a gradual and sustainable recovery from its 2008 lows. Similarly, a stronger U.S. dollar and improved consumer sentiment have driven equity markets to record highs. Meanwhile, gold may have ended its cyclical bull market in 2011, and now looks to trend lower long term. The investor fear that led to gold's exponential growth in years past is now gone, and the Federal Reserve is attempting to make the transition to life after stimulus. The regression results show that the price influence of equity indexes and the physical commodity of gold account for about 80% of daily price fluctuations in gold-mining stocks. When broken down to each component, gold is the bigger contributor. Follow @AndrewSachais This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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