What Draws Investors to Precious Metals?

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What Draws Investors to Precious Metals? PART 1 OF 6

US Dollar Shines Bright as Precious Metals Fade

Dollar against precious metals

All four precious metals, excluding palladium, fell September 26, as the US dollar had a positive day once again. Gold fell 0.71% and closed at $1,297.70 per ounce, while silver fell 1.5% and closed at $16.90. Platinum remained the biggest loser, falling 1.7% and closing at $924.70.

The US dollar, depicted by the DXY currency index (UUP), rose ~1.3% in five trading days. On Tuesday, it rose 0.34%. The dollar rose against the euro, which took a hit due to Germany’s election results and concerns of possible policy shifts by the president of the European Central Bank.

US Dollar Shines Bright as Precious Metals Fade

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Inverse relation

The above chart illustrates fluctuations in gold and the dollar during August and September. As precious metals are dollar-denominated assets, their prices waver with dollar changes. A rise means investors from other countries will have to shell out more of their home currency to buy the dollar, which can result in a sharp cut in demand for dollar-denominated assets.

Similarly, a fall in the dollar lures investors towards dollar-denominated assets, which then see a price increase. Dollar fluctuations are not only responsible for changes in precious metal (GLD) prices, but also changes in mining stocks such as Barrick Gold (ABX), Goldcorp (GG), Kinross Gold (KGC), and Buenaventura (BVN). These four mining stocks have fallen over the past 30 trading days, mostly due to the dollar’s revival.


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