Gauging the Role of the US Dollar in the April 19 Fall of Precious Metals

Another important phenomenon that played on the fall of precious metals on Wednesday, April 19, was the upswing of the US dollar.

Meera Shawn - Author

Apr. 24 2017, Updated 7:39 a.m. ET

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US dollar’s rise and fall

Another important phenomenon that played into the fall of precious metals on Wednesday, April 19, was the upswing of the US dollar (UUP). The US dollar index, as depicted by the DXY Currency Index (DXY), rose 0.24% on Wednesday. The US dollar had suffered much during the past one week. It has seen a five-day trailing loss of 1%.

Any rise or fall in the US dollar plays substantially on precious metals as the latter are dollar-denominated assets. The higher the US dollar scales, the more expensive it gets for investors from other countries to buy dollar-based assets like gold and silver.

Similarly, as the dollar tumbles, the demand for the dollar and dollar-denominated assets resurfaces.

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The Fed’s decision

The US Federal Reserve’s decision to hike the interest rate in March could also positively impact the US dollar. Thus, the rise in dollar and rate of interest both could have a doubly negative impact on gold. However, recently, the Fed mentioned in its Beige Book that the US economy expanded at a modest-to-moderate pace between mid-February and the end of March, which doesn’t forecast a very hawkish stance for the upcoming meeting.

The correlation between gold and the US dollar is now -0.12%. Remember, a negative correlation suggests an inverse relationship, meaning that over the past year, about 12% of the time the dollar rose, gold fell.

Mining companies that fell on Wednesday, April 19, with the fall in precious metals included Silver Wheaton (SLW), Newmont Mining (NEM), New Gold (NGD), and B2Gold (BTG). These shares plummeted 3.2%, 2.3%, 2.2%, and 0.71%, respectively. The Physical Swiss Gold Shares (SGOL) and Physical Silver Shares (SIVR) fell 0.40% and 0.57%, respectively, on Monday, April 17.


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