DXY and commodities
The DXY currency index prices the US dollar against six major world currencies including the Canadian dollar, Euro, pound sterling, Japanese yen, Swedish krona, and Swiss franc. On Friday, November 20, 2015, the US dollar gained by a whopping 0.58% against the other currencies. The rise in the dollar was likely backed by the preparations of the December rate hike that now seems to be on the cards. Precious metal markets have been impacted as well. Gold fell 0.17% and closed at $1076.3 a troy ounce. Silver too 0.89% and settled at $14.10 per troy ounce.
The rising US dollar puts downward pressure on dollar-denominated commodities. Significant price changes in the US dollar are most likely to provoke changes in dollar-denominated assets like gold and silver. You can see a historical price chart of gold and the US dollar above. Both are known to have an almost inverse relationship, especially in the longer term.
Fed eyeing a liftoff
It seems like precious metals and the ETFs that are linked to them, such as the Global X Uranium ETF (URA) and the VanEck Vectors Junior Gold Miners ETF (GDXJ), follow the Fed’s stance on its October meeting, and are preparing for a liftoff. The severe plunge witnessed in these ETFs and the precious metals they are linked to signals that the precious metal markets are ready for the rate hike move. The rise in the rates is almost priced in the precious metals now.
Gold is expected to suffer as an investment class once Treasuries have higher returns owing to the rate hike. Investors may flock to Treasuries, deserting precious metals, and this could lead to further falls in prices. The higher physical demands from the East seem unable to buoy precious metals in the current scenario.
The mining equities that have witnessed a fall in their prices include IamGold (IAG), AngloGold Ashanti (AU), and Hecla Mining (HL). These three companies contribute 6.8% to the price changes in the VanEck Vectors Gold Miners ETF (GDX).