Declining US Dollar Helps Gold



Gold and DXY

The US Dollar Index, denoted by the DXY currency index, dropped 0.05% on Friday, October 2. It has accumulated losses close to 0.26% on a five-day trailing basis. The DXY index measures the dollar’s strength against a trade-weighted basket of six major currencies: the euro, the yen, the pound, the Canadian dollar, the krona, and the franc. The US dollar retreated on negative jobs data. The news of fewer-than-expected jobs in September is negative for the US economy, and thus for the dollar. However, a weaker economy means a delay in interest rate hikes, which is positive for gold.

The above chart compares the prices of gold and the DXY Currency index for 2015. Fed fund futures showed a 43% chance that the central bank will increase its benchmark rate in December. The figures are now down to 33% as of Thursday, October 1.

Article continues below advertisement

Other metals

Other precious metals also got a boost from the prospect of interest rates staying lower. The Comex futures contracts for silver rose twice as fast as gold to reclaim their earlier losses. Silver futures closed at $15.26 an ounce.

Platinum also recovered to settle at $909.5 an ounce. Platinum had touched a mark of $893.4 on Friday, its lowest level since 2008. Palladium continued to climb, closing at $697.6 per ounce. It was up ~$20 and reached its highest mark in three months. The upbeat US total vehicle sales, which were at their highest since the boom times in the mid-2000s, backed the rising palladium prices.

Tracking miners and ETFs

Leveraged ETFs that saw gains due to surging precious metals included Direxion Daily Gold Miners ETF (NUGT) and Direxion Daily Junior Bull Gold 3x (JNUG). These ETFs increased ~23% and 19%, respectively. Miners that entered the positive territory after Friday include Hecla Mining (HL), Goldcorp (GG), and Gold Fields (GFI). These three stocks make up ~12.5% of the VanEck Vectors Gold Miners ETF (GDX).


More From Market Realist