uploads///Gold price versus DXY Currency

How Sentiments surrounding the Dollar Are Playing on Gold, Miners

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Dec. 4 2020, Updated 10:53 a.m. ET

Softening of the dollar

As the US dollar lost some ground on February 20, 2017, its weakening gave a push to gold prices. Gold rose ~0.2% over its previous trading day’s close, playing in the range of $1,220–$1,245 per ounce. Gold futures for April expiration closed at $1,238.5 per ounce.

Silver followed gold’s lead, rising ~0.4% to almost $18 per ounce. Platinum and palladium, however, saw a down day. Platinum fell 0.05% and ended the day at $1,000 per ounce. Palladium, too, slipped 0.05% to close at ~$771.5 per ounce.

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Dollar versus gold

Precious metals are, as we know, dollar-denominated assets, and the demand for these assets usually falls with a rise in the dollar. Investors from other countries first have to invest in the dollar to buy dollar-denominated assets. For this reason, as the dollar becomes more expensive, fewer investors will be keen on buying greenback-based assets.

The comparative performance of the US dollar (UUP) against gold (IAU) is shown in the chart above. The higher the dollar surges, the greater gold’s fall could be. Under extreme economic turbulence, the US dollar and gold are occasionally used as haven assets, so it’s not unheard of for the demand for both to surge.

Rises and falls in precious metals are also closely reflected in the shares of miners such as GoldCorp (GG), Alamos Gold (AGI), First Majestic Silver (AG), and Harmony Gold (HMY). These mining shares have felt the results of gold’s 4Q16 fall in their prices. The interest rate has been the most important factor playing a hand in the falls of metals and mining shares.

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