Market Recap Commentary – First Quarter 2016

The Gold Rush

The article below is from the March 15, 1848 publication of The Californian announcing the discovery of gold at Sutter’s Mill. Two months later, the paper had to shutdown because its entire staff had left to prospect for gold.  Two years later, the population of San Francisco had swelled from 1,000 residents to more than 20,000.1 Fast forward about 150 years to the first quarter of 2016 and another gold rush of sorts appeared to be underway.

Source: California Digital Newspaper Collection

A flight to more traditional assets, following sharp declines for US equity markets during the first half of the first quarter, pushed the price of gold up as flows into gold-related products rose.2 Within capitalization categories, the Russell 2000 Index (small) and the Russell Microcap Index, experienced the most significant of the declines. Through February 11 the Russell 2000 Index was down almost 16% for the year. In glittering contrast, gold was up 17.5% over the same time period! Indeed, February 11 proved to be an inflection point for the first quarter, as oil prices staged something of a recovery, and small caps as represented by the Russell 2000 Index responded with a rally of their own, with the index increasing 14.9% through the rest of the quarter. With small caps coming rapidly back into favor, gold fell 1.1% from February 12 through March 31.

Performance divergence between small cap and gold is captured in the performance of ETFs tracking these two asset classes during the quarter. According to, through February, US listed gold related ETFs had strong inflows along with Fixed Income and Commodities  asset classes — attracting $6.5 billion. Small cap related ETFs saw outflows of more than $3.5 billion over the first two months of the quarter. In response to the apparent change in market conditions, flows followed performance, reversing trend in March. 

The price of gold marked the inflection point for the Russell 2000 Index in the first quarter

Sources: Bloomberg and FTSE Russell as of March 31, 2016. Past performance is no guarantee of future results. Please see important legal disclosures at the end of this report.

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