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How a Revival in the Dollar Could Affect the Mining Sector

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Dollar-denominated assets

Besides the Fed’s stance, another crucial factor that is playing on precious metals is the US dollar. After the failure of President Trump and the US House of Representatives to bring a new health care bill to a vote, the US dollar fell lower. As of March 29, the US dollar has lost almost 2.2%. The fall of the dollar gave strength to gold, silver, platinum, and palladium. These four metals have seen a year-to-date gain of almost 9%, 14%, 5.9%, and 16.2%, respectively.

The DXY index, which measures the dollar against a basket of six major world currencies, was trading close to 100 on Wednesday, March 29. DXY recovered a whopping 0.29% on Wednesday. However, it has lost almost 1.1% on a 30-day trailing basis.

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Inverse relationship

Any fall in the dollar (UUP) makes dollar-denominated assets less expensive for investors in other countries. Conversely, the stronger the US dollar gets, the more difficult it is for investors from other nations to invest in dollar-based assets like precious metals (GLD). Therefore, precious metals and the US dollar tend to be inversely correlated.

Despite the fall in precious metals and the increase in the US dollar, mining stocks and funds were trading higher on Wednesday. The VanEck Vectors Gold Miners (GDX) and the Sprott Gold Miners (SGDM) rose 0.44% and 0.49%, respectively. Mining stocks like Newmont Mining (NEM), New Gold (NGD), Sibanye Gold (SBGL), and Primero Mining (PPP) rose 0.58%, 3.7%, 2%, and 2.1%, respectively. Combined, these four miners make up 10.6% of the fluctuations in the VanEck Vectors Gold Miners Fund (GDX).

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