Why Gold Rose on September 7

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Part 3
Why Gold Rose on September 7 PART 3 OF 6

How Has the Dollar’s Decline Affected Precious Metals?

Dollar decline

Besides global concerns hovering over the precious metals, there has also been a push from US dollar index. which fell 0.68% on September 7. The index has fallen ~1.9% during the past month and 10.3% year-to-date.

The dollar’s fall has mostly been due to economic reports not meeting analysts’ expectations, as well as the Fed’s delay in hiking interest rates—the next hike won’t likely come until 2018. Rate hikes often boost the US dollar as investors start pouring money into the higher-yield-bearing asset.

How Has the Dollar&#8217;s Decline Affected Precious Metals?

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Inverse relation

The above chart shows how gold (IAU) (SLV) and the US dollar (UUP) have mostly moved in opposite directions. Since gold is a dollar-denominated asset, its price suffers from an increase in the dollar. A stronger dollar means dollar-denominated assets get more expensive for investors from other countries. Therefore, their demand drops, and their prices follow.

Precious metal mining companies that have risen over the past month include Primero Mining (PPP), Pan American Silver (PAAS), Royal Gold (RGLD), and Goldcorp (GG).


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