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How Is Gold Moving in Relation to the US Dollar?

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The falling dollar

All four precious metals witnessed an up day on Thursday, February 22, 2018. Gold, silver, platinum, and palladium rose 0.55%, 0.74%, 0.78%, and 1.8%, respectively. The rises in these metals were most likely led by the decline of the US dollar. The US dollar, depicted by the Currency Index (or DXY) fell 0.29% that day. However, it had a five-day trailing gain of 1.3%. The DXY was trading at 89.7. On the previous trading day, Wednesday, February 21, it had risen to its one-week high.

The US dollar and precious metals have an inverse relationship because metals are dollar-based assets. The rise in the US dollar causes investors from other countries to reduce their investments in the dollar, and thus the demand for dollar-based assets is negatively impacted.

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Bond yields fell

The fall of the US dollar was most likely led by the fall in U.S. Treasury bond yields. Declining yields mean less demand for home currency. Since the Fed minutes were optimistic, there are chances that it could be positive for the dollar in the longer run.

The above chart shows the performance of gold against the US dollar (UUP) depicted by the DXY. The positive reaction of gold also led to a rise in the SPDR Gold Shares (GLD), which rose 0.51% on February 22.

Among the mining shares that joined precious metals in their rise are Alacer Gold (ASR), Harmony Gold (HMY), AngloGold Ashanti (AU), and Pan American Silver (PAAS), which rose 0.46%, 2.4%, 0.40%, and 3.9%, respectively.

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