Dollar-denominated precious metals
The month of October seemed positive for the US dollar, with the DXY Currency Index gaining 0.9%. Whereas gold and the US dollar usually have an inverse relationship, they moved in line with each other in October as gold gained 2.8%. Silver, platinum, and palladium also gained, by 7.3%, 9.1%, and 3.1%, respectively. Precious metals are dollar-denominated. Therefore, a rise in the dollar should ideally lead to a fall in precious metals. As the US dollar rises, precious metals become more and more expensive for buyers with other currencies.
The SPDR S&P Metals and Mining ETF (XME) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) have gained 3.1% and 4.9%, respectively, on a 30-day trailing basis as of October 29. Precious metals mining equities such as Pan American Silver Corp. (PAAS), Kinross Gold Corporation (KGC), and EldoRado Gold Corporation. (EGO) have risen by 21.6%, 22.1%, and 14.9%, respectively. Above is a price chart for EldoRado Gold. Most mining companies have seen their prices decline sharply this year. The aforementioned companies contribute 8.7% to the VanEck Vectors Gold Miners ETF (GDX).
Market players are now trying to gauge when the Federal Reserve will raise interest rates for the first time since 2006. After the recent financial reports, a mixed picture of the US economy came forward. The US Department of Labor reports showed that the number of initial jobless benefits saw a rise of 1,000 last week to 260,000. Analysts had expected jobless claims to rise by 4,000 to 263,000 from the prior week’s 259,000. The US Department of Commerce reported that the economy witnessed a growth of 1.5% in the three months ended September 30. The figure lagged slightly behind the expectations for growth of 1.6%. The US economy expanded 3.9% in the preceding quarter. Based on the numbers, it seems that the question of US growth needs an answer for the Fed to raise interest rates.