What Caused the Slump in Precious Metals and Miners?



Precious metal movement

Gold prices had a third straight day of decline on Thursday, February 7, 2018. Gold spot prices fell 0.4% to trade at $1,312.40 per ounce. It touched its lowest mark of $1,309.50 since January 10, 2018. Silver traded almost flat at $16.40, while platinum and palladium fell 0.2% and 0.3%, respectively. They traded at $977.50 and $981.60, respectively. All four precious metals have seen their prices fall over the past five trading days.

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Much of the price fluctuations in precious metals were aided by the movement of the US dollar, which has recently bounced back from its low. It saw its biggest one-day gain on Wednesday, February 7, 2018, as the global equity indexes slumped. The US Dollar Index (or DXY), which depicts the US dollar, was trading at approximately 90.3 that same day. Investors were taken aback by the declining equity prices, which spurred the haven bids for the dollar.

Dollar-denominated assets

Often, the rise in the US dollar (UUP) is negative for precious metals since they’re dollar-denominated assets. The lower the dollar goes, the higher the demand for dollar-based assets such as gold and silver. A cheaper dollar means more foreign investments in dollar-based assets. On the other hand, a rise in the dollar is harmful to precious metals such as gold (GLD). The negative return in gold also caused the SPDR Gold Shares (GLD), a gold-based fund, to fall 0.3% and trade at $826.90. GLD’s holdings also fell.

Mining shares have also fallen over the past week. AngloGold Ashanti (AU), Eldorado Gold (EGO), Iamgold (IAG), and Barrick Gold (ABX) have fallen 9.5%, 6.6%, 6.1%, and 5%, respectively, on a five-day trailing basis due to the fall in precious metals.


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