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How Economic Numbers and the US Dollar Downplayed Precious Metals


May. 24 2018, Published 9:42 a.m. ET

A strong dollar influence

Before the Fed’s minutes were released on May 23, gold was trading lower due to the increased pressure from the surging US dollar. The US Dollar Index (or DXY), which prices the dollar against a basket of six major world currencies, was up 0.36% on the day, and it’s risen almost 3.3% in the last month.

The US dollar (UUP) remains a core determinant for gold and other precious metals. During the last month, gold and silver have fallen 2.5% and 1.4%, respectively. The famous gold- and silver-based iShares Gold Trust ETF (IAU) and iShares Silver Trust ETF (SLV) have seen YTD (year-to-date) falls of 0.8% and 3.1%, respectively.

Precious metals are dollar-denominated assets, so they often move against the dollar. A higher dollar means that dollar-based assets become expensive for investors from other countries, and demand for bullions falls.

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Upbeat numbers

The economic data that came out on May 23 were upbeat. US manufacturing activity has increased in May. The Flash Services PMI (purchasing managers’ index), which measures the level of a diffusion index based on surveyed purchasing managers in the services industry, was at 55.7, much higher than the anticipated 54.9. The Flash Manufacturing PMI, which measures the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry, inched up to 56.6 in May from 56.5 a month earlier.

These numbers supported stronger demand for the US dollar and caused adverse movements in the haven bids for gold and silver.

Among the mining companies that managed gains in their prices on May 23 despite the negative reaction of precious metals were IAMGOLD (IAG), AngloGold Ashanti (AU), Barrick Gold (ABX), and Hecla Mining (HL). These companies saw rises of 2.4%, 0.73%, 1.6%, and 0.76%, respectively.

In the next article, we’ll discuss the Fed’s minutes and precious metals.


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