How Long Will Gold Remain Driven by Sentiment?
US dollar and gold
Precious metals have once again benefited from a fall in the US dollar. In the past few weeks, fluctuations in precious metals and precious metals–based funds have been influenced by changes in the currency.
The US dollar is represented above by the DXY currency, which prices the dollar against a basket of six major trade-weighted world currencies, including the Swedish krona, the Japanese yen, the Canadian dollar, the British pound, the euro, and the Swiss franc.
DXY has fallen about 0.69% on a trailing-five-day basis. During the same timeframe, gold and silver have risen 0.1% and 3.8%, respectively.
Weak data influence haven demand
The fall of the dollar was majorly affected by the weak housing starts data that came out on April 19, 2016. New residential building permits issued last month fell to 1,090,000, substantially lower than the previous month’s figure of 1,170,000.
The number was also much less than the expected amount of 1,200,000. The number of permits touched a one-year low. Such data posted weakness for the US economy and thus for the US dollar, helping lend haven appeal to precious metals.
Mining and gold-based funds benefited
Gold and silver prices jumped a whopping 1.6% and 4.4%, respectively, on April 19. The rises in gold and silver also lifted up funds such as the Global X Silver Miners ETF (SIL) and the Sprott Gold Miners ETF (SGDM). These two precious metals mining funds rose 9.2% and 4.5%, respectively, on the day.
Another few funds that rebounded included the Physical Swiss Gold Shares ETF (SGOL), the PowerShares DB Gold ETF (DGL), and the DB Gold Double Long ETN (DGP). These three funds rose 1.5%, 1.5%, and 2.5%, respectively.
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