The robust US dollar and global stocks underpin precious metals such as gold and silver, which do not offer yields or bear dividends. The demand for these safe-haven assets peaks when other forms of investments like stocks and Treasuries are subdued. Global turbulence, which we saw during the start of the year, bolsters the rally in precious metal prices.
The US dollar (DXY) snapped a six-session rally. A weak dollar makes dollar-priced assets such as gold cheaper for holders of other currencies. The DXY index measures the dollar’s strength against a trade-weighted basket of six major currencies: the euro, the yen, the pound, the Canadian dollar, the krona, and the franc.
The above chart shows how strongly gold is related to the US dollar, resulting in a strong inverse relation.
Miners and funds rose
The SPDR Gold Trust ETF (GLD), the world’s largest gold-backed exchange traded fund, saw an increase of 0.3% on Tuesday, May 10, 2016, to its highest level since December 2013. The iShares Silver Trust ETF (SLV) jumped by 25.6% on a year-to-date basis.
The mining shares that rebounded on Wednesday, May 11, 2016, due to the rise in all four precious metals are Agnico-Eagle Mines (AEM), Coeur Mining (CDE), and Cia De Minas Buenaventura (BVN). These three companies rose by 2.9%, 3.9%, and 5.3%, respectively. Combined, these three mining stocks make up 8.9% of the price fluctuations observed in the VanEck Vectors Gold Miners ETF (GDX). GDX rose by 2.7% on May 11.