Yahoo Finance US Dollar Drops: How Did This Affect Precious Metals?
Not All That Glitters Is Gold: All Precious Metals See Gains
The yen gains more
Japan and Europe have moved towards negative interests rates. A lower rate of interest means money flowing out of treasuries and into alternative assets, which can provide better returns and more security. Famous haven assets such as gold and silver often rise in value when interest rates are low.
Gold prices got some stimulus after the Bank of Japan opted against boosting the economy more. The Bank of Japan is likely taking time to assess the viability of the negative interest rates introduced three months ago. Japan’s inaction further weighed on the US dollar, helping dollar-denominated assets. According to Bloomberg, when the expected stimulus for the Japanese economy was not delivered, the yen rose against the US dollar. The US dollar fell by almost 1%, its biggest drop since March 17.
Miners and funds rise
Weakness in the US dollar has historically helped precious metals. As these are dollar-denominated assets, they often rise with a fall in the dollar. A cheaper dollar means less money required in investors’ home currencies to pay for the asset. As a cheaper product gets higher bids, prices rise.
When gold and silver rise, mining funds and shares often follow. The Market Vectors Gold Miners ETF (GDX) and the iShares MSCI Global Gold Miners ETF (RING) have risen by 19.7% and 20.4%, respectively, on a 30-day trailing basis.
The mining shares that rose the highest included Kinross Gold (KGC), First Majestic Silver (AG), and Hecla Mining (HL). These three companies increased by 55.6%, 51.6%, and 46.8%, respectively, on a 30-day trailing basis. Together the shares make up 5.2% of the fluctuations in the Market Vectors Gold Miners ETF.
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