Reading the Dollar Impact on Precious Metals amid Fed Changes



Precious metal reaction

Thursday, November 2, 2017, was an up day for gold, but silver, platinum, and palladium continued to fall. They fell 0.23%, 0.94%, and 0.42%, respectively, that day. Gold closed at $1,278.10 per ounce. Much of the movement in precious metals over the past month has been determined by the Fed indicators and the US dollar.

The US dollar has risen 1.2% during the last 30 trading days. It’s often expected that changes in the dollar could reciprocate in precious metals. Because gold, silver, platinum, and palladium are all dollar-based assets, the declining dollar means a rather cheap currency for investors from other countries. So the demand for dollar-based assets could rise. Similarly, the increase in the dollar (UUP) could reduce the lure of these dollar-denominated assets.

The above chart depicts how the dollar and gold (GLD) (SLV) have been reacting to each other.

Dollar changes

Dollar changes are largely based on the overall sentiment in the United States. As the country decides to raise interest rates, there’s more of a chance that investors around the globe could start pouring money into U.S. Treasuries, causing the US dollar to rise.

That could have a negative impact on precious metals. And let’s remember that a higher interest rate could also hurt non-yield bearers.

The fluctuations in precious metals also impact the mining stocks of Goldcorp (GG), Royal Gold (RGLD), Hecla Mining (HL), and Coeur Mining (CDE).

More From Market Realist