As we saw in our previous article, the US dollar and rate hike speculation both have been playing on precious metals. In this article, we’ll look at the movements in the dollar and gold.
The US dollar is depicted here by the DXY Index, which rose about 1.9% in February. The increase in the dollar usually has a negative impact on precious metals like gold, silver, platinum, and palladium. However, the last one month was different, as the US dollar (UUP) and precious metals all moved together. The DXY Index was trading at 101.12 as of February 28.
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Precious metals are dollar-denominated assets, and the demand for these assets usually falls when the dollar rises. Investors from other countries first have to invest in the dollar to buy dollar-denominated assets. For this reason, as the dollar becomes more expensive, fewer investors will want to buy greenback-based assets.
The comparative performance of the US dollar (UUP) against gold (GLD) is shown in the chart above. The higher the dollar surges, the greater gold’s fall could be. Under extreme economic turbulence, the US dollar and gold are occasionally used as haven assets, so it’s not unheard of for the demand for both to surge.
Rises and falls in precious metals are also closely reflected in mining stocks such as Goldcorp (GG), Alamos Gold (AGI), Kinross Gold (KGC), and IAMGOLD (IAG). These mining stocks have felt the results of gold’s 4Q16 fall. The interest rate has been the most important factor in metal and mining stock falls.