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The Impact of the Dollar on Precious Metals in 1Q17

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Fall of the US dollar

Besides the interest rate hike fear and global concerns, another significant indicator that kept gold on its toes was the fluctuation in the US dollar. The US dollar, depicted in the graph below by the DXY Currency Index, fell about 1.8% in 1Q17. The index is trading close to the 100 level.

The fall of the dollar gave strength to gold, silver, platinum, and palladium. These four metals have seen year-to-date rises of 8.3%, 14.2%, 5.2%, and 17.2%, respectively. 

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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 such as precious metals (GLD). So precious metals and the US dollar tend to be inversely correlated.

Macroeconomic indicators are solidly playing on the US dollar. Despite the inverse relationship, it’s possible that due to haven bids, the US dollar and gold could rise. Both these assets have been historically famous for their safe-haven feature.

The US dollar could also impact mining shares. Despite the fall of the dollar, miners have shown mixed performances. Mining stocks that rose on the last trading day of March included Silver Wheaton (SLW), Hecla Mining (HL), Gold Fields (GFI), and Franco-Nevada (FNV). Together, they make up about 15.0% of the VanEck Vectors Gold Miners ETF (GDX).

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