How Gold Lost Its US Dollar Wings
There’s a strong link between gold and the US dollar since precious metals are priced in the dollar.
Economic data from the United States on Tuesday, July 21, 2016, on home starts and building permits affected gold and other precious metals to a certain extent.
Gold, silver, and platinum have posted trailing-five-day losses of 0.51%, 1.2%, and 0.17%, respectively. The US dollar has posted a trailing-five-day gain of 0.16%.
On Monday, July 18, gold futures for August expiration rose about $2 to close at $1,329.30 per ounce. The safe-haven demands waned with the coup attempt in Turkey failing to increase risk sentiment.
According to data from the World Gold Council, Japan’s consumer demand for gold was 6.8 tons in the first quarter of the year.
Though India and China remain the top gold buyers, the higher prices of gold and silver resulted in a drop in the physical gold demand.
2016 started with more turbulence than expected, and many central banks started stacking gold.
Much of the movement in precious metals over the past year has been a result of the Fed’s interest rate decisions.
The holdings in the SPDR Gold Shares (GLD), the world’s largest gold-backed ETF, fell 0.25% to 962.9 tons on Thursday, July 14.
Gold futures for August expiration shed almost $4.80 and closed at $1,327.40 per ounce on Friday, July 15.
The US dollar is a crucial currency to consider when analyzing the precious metals, as they are priced in the US dollar.
US two-year and ten-year interest rates are falling, which has helped gold. Declining confidence in world economies after the Brexit also pulled US Treasuries down.
Usually, the US dollar and precious metals follow opposite paths. However, over the past month, the US dollar and gold have been moving together, both rising.
As precious metals continued on their journey north, gold holdings expanded by more than 500 tons since bottoming in January.
Gold and silver both touched a two-year high mark on Tuesday, July 5. Gold accelerated to $1,360.3 and silver rose to $21.2 per ounce.
Silver futures for September expiration touched the highest level of approximately $20 on Friday, July 1, 2016. Gold reached the highest mark of $1,347 per ounce.
The gold-silver ratio was trading at 72.1 as of May 2, 2016. The ratio suggests that it requires almost 72 ounces of silver to buy a single ounce of gold.
Most of the time, precious metals and the US dollar are inversely related. A fall in the US dollar is a stimulus for these precious metals.
Precious metals rebounded on Wednesday, June 29. Gold for August expiration jumped 0.88% and closed at $1,326.9 per ounce. Silver also joined the rally.
Gold rolled lower on June 28 as the reaction to the UK’s Brexit decision settled. Gold had touched its peak since March 2014.