How Are Dollar Changes Impacting Precious Metals?
The dollar’s jump
As we mentioned in the first part of this series, the US dollar rose against the British pound in the wake of market uncertainties following the recent terrorist attack in Manchester, England. To be sure, investors often choose the US dollar as a haven asset, or else they’ll choose gold and bonds. But a rise in interest in gold often has an adverse impact on dollar-denominated assets like gold and silver.
The DXY index, which measures the dollar (UUP) against a basket of six major world currencies, rose 0.38% on Tuesday, May 23. The DXY index has fallen about 0.77% over the past five trading days, and during that time, we’ve seen an overall rise in precious metals.
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As gold and the three other precious metals are all dollar-denominated assets, they usually slump with any increase in the dollar and rise with any fall in the dollar, given their inverse relationships. The higher the dollar surges, the more expensive it gets for the investors from other countries to invest in the currency, and then the demand for dollar-based assets drops. That said, a falling dollar can lure investors toward dollar assets.
Rises and falls in precious metals also significantly impact precious metal funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV), which fell 0.58% and 0.49%, respectively, on Tuesday, May 23.
Mining shares that fell on Tuesday due to the tumbling precious metals include Agnico Eagle Mines (AEM), Newmont Mining (NEM), Royal Gold (RGLD), and B2Gold (BTG). These four stocks fell 3.1%, 1.9%, 0.81%, and 2.4%, respectively, on Tuesday. Notably, these four miners combined make up about 16.5% of the VanEck Vectors Gold Miners Fund (GDX).