How the Loss in the US Dollar Helped Gold



Precious metals and the US dollar

Gold futures for August expiration rose 0.9% to $1,338.90 per ounce on Thursday, July 21. Silver, platinum, and palladium followed the same route as gold and jumped 1%, 1.6%, and 1.4%, respectively. The rise in the precious metals on Thursday was most likely due to the fall in the US dollar.

The US dollar is depicted by the DXY Currency Index, which measures the strength of the US dollar against a basket of six major currencies: the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. DXY fell 0.1% on Thursday and ended at 97. However, it has risen 3.4% on a trailing-30-day basis.

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The weakness in the US dollar often gives wings to the precious metals. The bullions are dollar-denominated assets, which get cheaper for investors from other countries with the fall in the US dollar. Thus, the cheaper dollar makes the greenback-denominated precious metals cheaper, increasing their bids.

Thus, the one-day drop in the DXY index helped these metals soar. The global risk appetite, which has recovered rapidly from the Brexit vote shock, has considerably helped the US dollar.

Miners that rallied

The returns of the precious metals have also improved mining funds and stocks. The iShares MSCI Global Gold Miners ETF (RING) and the iShares Gold Trust (IAU) have risen 3.6% and 1.5%, respectively, on the same day.

Miners that rose the most on Thursday include IAMGOLD (IAG), Coeur Mining (CDE), and Hecla Mining (HL). Their stocks rose 7.2%, 6.9%, and 6.3%, respectively. Together, these miners make up 2.8% of the VanEck Vectors Gold Miners ETF (GDX).

Find out the reason behind the dollar’s slide in the next article in this series.


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