US Dollar Fluctuations and the Impact on Precious Metals
The dollar succumbs
A crucial factor that has impacted many of the changes in precious metals over the past year is the US dollar. Precious metals are dollar-denominated assets, and their demand rises with the fall of the dollar. A cheaper dollar gives them a push, and a rise in the dollar may make them fall.
The US dollar index, which prices the dollar against a basket of six major world currencies, has fallen 10.6% since the beginning of 2017. The dollar touched its two-year high on Friday, September 8, 2017. The U.S. Dollar Index (or DXY) fell 0.34% that same day and closed at 91.4.
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The above chart shows how gold (IAU) (GLD) 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 expensive for investors from other countries. Therefore, their demand drops, and their prices follow.
The greenback was under pressure as long-dated Treasury yields fell to their ten-month lows after the weak US jobs data and the impact of the hurricanes, which affected investor sentiment. The chances of a delay in the interest rate hike by the Federal Reserve has also played negatively on precious metals. Tensions in North Korea have also been instrumental in the decline of precious metals.