Gold Touches a 3-Week High
How Has the Dollar's Fall Affected Precious Metals?
Gold and the Fed
Gold has been steadily rising over the past three trading sessions. On Monday, April 11, 2016, gold rose 1.1% to close at $1,258 per ounce. The day’s high was $1,260.90, which was also a three-week high for gold. Among other precious metals, platinum closed at $990.80 per ounce, while palladium closed at $545.50 an ounce.
The scaled-back expectations of a US interest rate hike have most likely been the reason behind the surge in the bullions. Federal Reserve Chair Janet Yellen expressed doubts about a short-term rate hike, thus pushing the dollar lower.
The chart above shows the relationship between the two- and ten-year interest rates and the price of gold.
A country’s interest rates and currency have a close-knit relationship. Whenever interest rates rise, the currency follows suit, and vice versa. When investors park their money in a country, they increase demand for the country’s currency.
Mining companies and funds
Both lower interest rates and a weaker dollar help the precious metals. The current strength showed by the metals is likely due to the depreciating dollar and globally lower interest rates.
The changes in the precious metals are often reflected in mining-based funds like the Market Vectors Gold Miners ETF (GDX) and the Sprott Gold Miners ETF (SGDM). These two funds rose 5.9% and 6%, respectively, on Monday.
The mining shares that remained the top performers on Monday included IAMGOLD (IAG), Yamana Gold (AUY), and B2Gold (BTG). These three companies rose 11.5%, 10.6%, and 9.6%, respectively. Together, the three companies make up 6.6% of GDX.
In the next part of this series, we’ll look at the movement of the dollar and its influence on the precious metals.
Browse this series on Market Realist:
