Gold at 8-Week Low: What’s Next?
Precious metals fell on July 3, 2017, with gold falling to an eight-week low of $1,218 per ounce. The fall in these metals was likely due to the revival in the equity markets that day and the rebound in the US dollar. Precious metals and the US dollar are significantly inverted related since the metals are dollar-denominated assets. The prices of greenback-based assets are negatively impacted by the rise in the dollar since it becomes expensive for investors of other countries to buy the dollar and dollar-based assets.
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Another crucial factor that continues to play on precious metals is the US interest rate. In the next part of this series, we’ll focus on how inflation and the interest rate play on precious metals, especially gold.
The correlation numbers between gold (GLD) and the US dollar (UUP) are not very high, despite the prevalent relationship between the two. The year-to-date correlation between gold and the US dollar is -0.21%. That suggests that about 21.0% of the time, a rise in the US dollar will lead to a fall in gold, and a fall in the US dollar will result in a rise in gold.
Precious metal mining shares also saw red lines throughout the sector. Goldcorp (GG), Newmont Mining (NEM), New Gold (NGD), and Barrick Gold (ABX) fell 1.5%, 1.5%, 3.8%, and 1.9%, respectively, on Monday, July 3. Combined, these big miners make up about 21.8% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).