Understanding How the Dollar Is so Decisive in Precious Metal Changes
Gold futures for December expiration rose 0.46% to and closed at $1,277.7 per ounce on Monday, October 30. Silver, platinum, and palladium followed suit and rose 0.57%, 0.89%, and 0.46%, respectively, with silver closing at $16.9 per ounce.
Besides geopolitical factors (which we’ll discuss in the next of this series), the US dollar has been decisive in this rise among precious metals.
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The US dollar (UUP), as depicted by the DXY currency or DXY, fell 0.38% on Monday. But it’s still floating close to its highest mark since July 2017.
Remember, precious metals are all greenback-based assets, and so their demand is negatively impacted by any rise in the dollar. Similarly, a drop in the dollar can lead precious metals to rise.
Treasuries and gold
The dollar is also sensitive to US Treasury interest rates, and so ar precious metals. As interest rates surge, more investors are often lured into buying Treasuries, which causes a rise in the demand for the dollar. Rising rates and the rising US dollar are both detrimental to precious metals.
Notably, the Bank of Japan and the Bank of England are also meeting this week to consider interest rate policies, and so a rise in these rates could have a negative impact on precious metals.
Meanwhile, the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) have risen 10.7% and 5.3%, respectively, YTD (year-to-date). According to the Commodity Futures Trading Commission, speculators have cut their bullish COMEX gold bets by 1,968 contracts to 173,043 contracts as of Friday.