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Will Precious Metals Continue to See Losses?

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Precious metals retreat further

After precious metals saw an up day on Monday, November 16, 2015, they seemed to be back to square one on November 17. Following gold’s 1.4% fall, silver, platinum, and palladium also fell.

Silver futures for December delivery closed at $14.20 per ounce on November 17, retreating 0.36%. Platinum and palladium futures also extended their losses and fell 1.2% and 0.92%, respectively.

The US Dollar Index (or DXY) has gained 0.61% in the last five trading days. DXY measures the value of the US dollar relative to six other major world currencies. The rise in the dollar has been mainly due to the hiking of interest rates anticipated for the end of the year.

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The fall in precious metals has two factors affecting it. The first is the rate hike, which will diminish the appeal of non–interest-bearing gold. The second is the strength of the US dollar, which further curbs the appeal of precious metals priced in the dollar as it becomes expensive for other currency buyers.

Inflation figures subdued

The U.S. Bureau of Labor Statistics recently reported that prices in the economy improved by 0.2% in October 2015. The same figures were down by approximately the same amount in September.

The inflation number is yet another factor affecting precious metals prices. Lower inflation levels should ideally postpone the Fed’s rate hike decision and buoy gold. But the Fed’s hawkish stance in its October meeting has indicated otherwise. Inflation has remained subdued for the first ten months of the current year at 0.5%, far below the target of 2%.

Tracking mining ETF and companies

Leveraged mining ETFs faced a blow as precious metals plunged. The Direxion Daily Gold Miners ETF (NUGT) and the ProShares Ultra Silver ETF (AGQ) have fallen a whopping 51.8% and 21.6%, respectively.

Mining stocks such as Royal Gold (RGLD), AngloGold Ashanti (AU), and IAMGOLD (IAG) have been among the biggest losers in the mining industry on a 30-day-trailing basis. These three companies constitute 9.8% of the VanEck Vectors Gold Miners ETF (GDX).

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