Precious Metals Plunge as Dollar Approaches Two-Month High
Precious metals declined sharply on Monday, giving back some of last week’s rapid gains as rising bond yields triggered renewed upside in the U.S. dollar.
Gold, Silver Slump
Precious metals prices were down across the board at the start of the week, as commodities traded inversely with the dollar. Gold for December settlement, the most actively traded futures contract, fell $18.20, or 1.5%, to $1,187.40 a troy ounce on the Comex division of the New York Mercantile Exchange.
Silver’s declines were much more severe percentage-wise. The grey metal plunged 34 cents, or 2.4%, to $14.31 a troy ounce.
Gold’s premium over silver has declined 2.6% over the past 30 days to 82.45 ounces, according to Goldprice.org. Over the past 60 days, gold’s premium has increased 4.6%. This basically means that one ounce of gold is worth 82.45 ounces of the grey metal.
Platinum prices were also down on Monday. The spot value declined $8.42, or 1%, to $814.11 a troy ounce.
Copper slipped 60 cents, or 0.2%, to $275.70 a pound.
The U.S. dollar was riding new highs on Monday as the recent bond-market selloff triggered a sharp rise in Treasury yields. The dollar index (DXY) reached a high of 96.03, its best level since mid-August. At press time, DXY was up 0.3% at 95.88.
A rising DXY figure indicates a stronger U.S. dollar versus a basket of six major currencies, which includes the euro, yen, pound, franc, Canadian dollar and Swedish krona.
A combination of factors has contributed to the recent surge in bond yields and the commensurate gain in the dollar. A stronger domestic economy, highlighted by the recent drop in unemployment, has heightened expectations for a faster tightening cycle by the Federal Reserve. Recent turmoil in Italy has also contributed to the growing appeal of the dollar as a reserve currency. Interestingly, Italy’s budget crisis pushed investors into the safety of gold last week.
When yields rise in the bond market, the U.S. government must pay higher interest rates to attract new buyers. This usually increases demand for U.S. Treasuries, thereby leading to a rise in the dollar.
For commodities priced in dollars, a stronger greenback serves as a disincentive for holders of foreign currencies. If this relationship holds, precious metals like gold and silver could experience further weakness as the Federal Reserve continues normalizing interest rates. The Fed hiked rates last month for the third time this year and is expected to raise them again in December.
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