How Has the US Dollar Affected Platinum Prices?

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Sep. 20 2016, Published 3:20 p.m. ET

Platinum and the dollar

The possibility of an ongoing strike in South Africa could lead to a further fall in the rand. The current weakness in the rand made it fall to all-time lows against the US dollar in early 2016 but has helped mining companies. The miners expend their production-related costs in the weaker rand and sell their core products, or precious metals, in the US dollar. This practice can help margins rise, and so miners are encouraged to sell platinum because they get more local currency for metal priced in greenbacks.

The relationship between platinum and the US dollar, depicted below by the DXY currency index, is inverse. The DXY index prices the dollar against a basket of six major world currencies. DXY has fallen 2.7% so far in 2016 while platinum has risen 15%.

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Positive outlook

Platinum’s rise in 2016 may also be due to the workers’ strike in South Africa and the weakening US dollar. Analysts are further expecting platinum group metals to rise in the third quarter of 2016, with platinum ranging between $950 and $1,170 and palladium between $530 and $670. The rise will likely be driven by a rebound in speculative and investor demand and tighter mine output.

A lackluster US economy, of course, could additionally cause the dollar and fuel to fall, which would affect precious metals including platinum. Leveraged mining funds that also rose along with these metals include the Direxion Daily Junior Bull Gold 3X (JNUG) and the ProShares Ultra Silver (AGQ).

Equities that rose due to US dollar weakness and the rise in metals include Primero Mining (PPP), Silver Wheaton (SLW), Gold Fields (GFI), and Sibanye Gold (SBGL). Together, the three shares make up 11.6% of the fluctuations in the Vaneck Vectors Gold Miners Fund (GDX).

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