Rising US dollar
As the Fed’s rate hike seems to be in the cards before the year ends, precious metals have taken a huge plunge. With the interest rates rising above the zero level, the US dollar will become stronger compared with other world currencies. More and more investors may be keen on the dollar due to the higher rates offered.
The DXY Currency Index, which measures the performance of the US dollar against the Swedish krona, the Japanese yen, the British pound, the Euro, the Swiss franc, and the Canadian dollar, has surged a whopping 4.8% on a 30-day trailing basis. The DXY has risen almost 9.8% year-to-date. Correspondingly, gold has lost 8.1% and silver has lost 9.0%. Platinum and palladium have fallen 28.5% and 31.6%, respectively.
As the precious metals are priced in US dollars, a gaining dollar will make the metals more expensive if bought with another currency, which may cause the prices to retreat. The above chart shows the historical relationship between the US dollar and gold.
Gold futures have tumbled 8.6% since the slump began in mid-October. Gold once again reached the low of $1,073 an ounce on November 12, which is the lowest mark seen since February 2010. With a rate hike on the horizon and plummeting precious metal prices, it looks like the dollar may remain firm.
A stronger dollar will also negatively impact the shares of mining companies that are priced in the US dollar. Companies such as Newmont Mining (NEM), Coeur Mining (CDE), Hecla Mining (HL), and Alacer Gold (ASR) can expect to fall further as the dollar gets stronger. These companies’ stocks together make up 8.2% of the VanEck Vectors Gold Miners ETF (GDX).