Strong Manufacturing Data Pressured Precious Metals
US dollar and gold
The US dollar, tracked by the US Dollar Index (DXY), which measures the price of the dollar against a basket of six major world currencies, gained 0.04% on Tuesday, March 1, 2016. The dollar surged against the Japanese yen.
The global turbulence had extended fears among the Federal Reserve decision-makers, and the possibility of a near-term rate hike remained blurred. The extended liftoff move and the possibility of negative rates all weighed down the US dollar and lifted up gold.
However, the US dollar has recovered some of the previous losses and has gained about 0.96% on a five-day trailing basis. The rise in the dollar has weighed down the dollar-denominated precious metals like gold and silver. These precious metals fell by 0.87% and 3.3%, respectively. The above chart shows the inverse relationship between the US dollar and gold.
Weakening home currency for miners
The rise in gold was also backed by the inflow of gold-based assets like the SPDR Gold Trust ETF (GLD). The assets of these funds rose about 1.2% to 786.2 tons on March 1, which was the highest level since September 2014. GLD has seen an increase of 16.1% since the beginning of the year. Another gold-based fund that follows the gains in gold, the iShares Gold Trust ETF (IAU) has also increased 16.1%.
The mining companies that have witnessed superlative gains since the start of 2015 include the South African miners, AngloGold Ashanti (AU), Gold Fields (GFI), and Harmony Gold (HMY). These three companies have seen gains of 71.7%, 41.2%, and 60%, respectively.
These miners have realized robust profits due to the comparative strength of the US dollar against the fast-depreciating South African rand. A cheaper home currency means lowered costs, which helped their operating margins. The three companies together make up 9.2% of the Market Vectors Gold Miners ETF (GDX).
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