uploads///Gold price versus DXY Currency

How the Falling Dollar Affects Precious Metal Prices

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Sep. 8 2016, Published 9:39 a.m. ET

DXY index fell

Price changes in the precious metals are in part a result of the fluctuations in the US dollar. The US dollar, depicted by the DXY Currency Index, fell 0.09% on Friday, September 2, which gave precious metals a splash of positive sentiment. The DXY Index measures the US dollar’s strength against a basket of six major world currencies. The index usually rises when the possibility of an interest rate hike increases, and it falls with the possibility of a delay in the hike.

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The overall economic sentiment also plays well on the US dollar. Positive economic news takes the dollar higher, while negative sentiment sets it rolling. The relationship between the dollar and dollar-denominated precious metals is inverse. The higher the price of the dollar, the lower the demand for dollar-denominated assets.

Economic expectations play on the dollar

The prospect of lower rates for longer can weigh on the dollar and boost the appeal of dollar-priced commodities, as they become cheaper for holders of other currencies. The funds that also rose due to the negative economic sentiment and the fall in the dollar include Sprott Gold Miners (SGDM) and the iShares MSCI Global Gold Miners (RING). These two funds rose 4.1% and 3.8%, respectively, on Friday.

Miners IAMGOLD (IAG), Harmony Gold (HMY), and Alacer Gold (ASR) also rose by 8.2%, 2.5%, and 2.6%, respectively, on the same day, reversing their losses from the previous week. Miners often see amplified returns compared to those seen in the precious metals.

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