How the 3% Slump in the Dollar Took on Gold
The DXY index, which measures the dollar against a basket of six major world currencies, tumbled to 99.05 on Wednesday, April 26, from as high as 100 during mid-April.
Gold touched a high of $1,297.40 per ounce on April 17, slightly shy of the $1,300 per ounce mark, due to the rising fear of political uncertainty, especially from North Korea and Syria.
France’s presidential election has been a booster for gold and silver over the past month due to the uncertainty surrounding the proceedings.
The global reserve currency, the US dollar (UUP), has been stuck in a narrow range for the last few weeks. It formed temporary bottom near 98.30.
After falling to the lowest levels since November 11 on Monday, the US dollar is slightly weaker in the early hours on April 25.
Another important phenomenon that played on the fall of precious metals on Wednesday, April 19, was the upswing of the US dollar.
Since the French elections are right around the corner, investors might start parking their money in safe-haven assets like gold.
Gold and other precious metals increased due to geopolitical tensions around the world. Gold rose ~4.9% during the past 30 trading days.
On its own stage across the Atlantic from the US Fed, the ECB (European Central Bank) has had its own quantitative easing program.
India and China make up 50.0% of the global demand for physical gold. When gold prices fall, physical gold-buying provides support for gold.
Dollar-denominated assets such as gold are influenced by the US dollar’s strength. A strong dollar is negative for gold, and vice versa.
The interest rate is a major factor that determines gold prices because it determines the attractiveness of the investment alternative.
Investors tend to hold gold in their portfolios as insurance against inflation. They want something that doesn’t lose its value.
The US jobs report showed only 98,000 job additions in March 2017. That was much lower than the consensus estimate of 180,000 jobs.
On a 30-day trailing basis, gold, silver, platinum, and palladium have risen 6.8%, 1.7%, 3.3%, and 5.5%, respectively.
On April 13, 2017, gold futures contracts for June expiration were $7.1 higher at $1,285.2 per ounce—the strongest level seen by gold since November 2016.
Platinum was the winning precious metal and rose 2.9% on April 11, ending the day at $966.20 per ounce.
As the markets experienced unrest on Tuesday, April 11, gold touched its five-month high of $1,275.10 per ounce.
As geopolitical risks emerged on the world stage, global stock markets wobbled and experienced selling pressures on Tuesday, April 11, 2017.
The US dollar, depicted by the US dollar index (DXY), dropped 0.31% on Tuesday, April 11, after hitting a nearly four-week high on April 10.