Gold pays no intermediary cash flows. So investors can easily opt to park their money in Treasuries rather than have a zero interest rate.
At its meeting on January 31–February 1, 2017, the Fed maintained the current interest rate, and gold hit an 11-week high.
Many of the recent changes in precious metals have been determined by changes in the interest rates offered on US Treasuries.
The most recent fall of the US dollar against the basket of six major world currencies gave further support to dollar-denominated precious metals.
Gold hit its highest price level in about one week on Tuesday, January 31, touching the $1,203 per ounce.
The flow in precious metals is often decided by the economic environment. The increase in risk sentiment in the market gives way to the haven demand of gold.
The reason behind the fall of the dollar on Friday, January 27, 2017, was lower-than-expected GDP numbers. The DXY ended the day 0.10% higher.
Changes in precious metals are usually impacted by changes in US interest rates. Last week, comments by Federal Reserve members significantly affected the metals.
Many of the changes in precious metals are determined by the overall health of the economy.
Gold depends on an important factor that could have a strong influence on it and play a major role in the determination of its price. That factor is inflation.
The increasing strength of the US dollar is one of the major factors that played a role in the fall in precious metals over the past two days.
Since Donald Trump’s new administration is planning to provide impetus to the economy, the haven bid for gold has fallen.
Gold fell on yet another day on Thursday, January 26, reaching its two-week low level.
In the shorter run, physical supply and demand figures do not do much to affect the price of precious metals like gold. But in the long run, they can.
The fall in precious metal prices on Wednesday, January 25, could have been driven by the relative strength seen in US equities.
Gold prices plummeted on Wednesday, January 25, 2017, and gave the lowest close in recent weeks.
As Donald Trump’s campaign called for tax cuts and increased infrastructure spending, the US dollar and equity markets saw an initial boost.
The correlation between gold and the US Dollar Index is -0.36, which means that about 36.0% of the time, gold and the dollar move in opposite directions.
As Janet Yellen, chair of the Federal Reserve, took a less hawkish stance on January 19, precious metals fell initially—but only a little.
Gold prices dropped on Friday, January 21, 2017, as Donald Trump worked to calm the markets and reiterated his plans to boost the US economy.