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Will Gold Recover Its Losses from the Weakening Dollar?

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GLD fund flow

So far in October, gold has continued to benefit from a weak US dollar and the expectation of a delayed US interest rate hike. Gold was trading at its seven-week high on the morning of October 12, almost touching the mark of $1,170, following pressure on the dollar the previous Friday, October 9. However, it had gained marginally—by only 0.07%—at the close of the day.

The SPDR Gold Shares (GLD) has been consistently following the returns of gold futures, gaining 0.40% on October 12 and surging by 4.90% on a 30-day trailing basis. The YTD (year-to-date) performance of gold and GLD shows losses of 2.10% and 2.00%, respectively. But the bullion price rout has wiped off close to $8 billion from precious metals-backed assets. The graph below illustrates the depleting fund flow from GLD.

 

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Mining equities

Mining stocks like Royal Gold (RGLD), Yamana Gold (AUY), B2Gold Corporation (BTG), and Pan American Silver Corporation (PAAS) had taken an immense hit during the July 2015 rout, but gold prices recoiled with the surging prices of other precious metals. And so after the first week of October, stocks for the above companies have a seen rises of 10.80%, 43.70%, 5.00%, and 19.40%, respectively, on a 30-day trailing basis.

The above companies’ stocks together make up 11.80% to the VanEck Vectors Gold Miners ETF (GDX). As October 12, GDX has gained 19.50% on a 30-day trailing basis. The prices of most of these mining companies’ equities are trading higher than their 50-day moving average prices.

Economic data coming from the US had disappointed the dollar, and it’s likely that this fall in the value of the greenback gave a push to precious metals, which are dollar-denominated and become cheaper for strengthening currencies when the dollar drops.

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