The economic maxim that a rising tide lifts all boats has a not-as-friendly corollary: a rising currency pushes down all commodities.
The US dollar index has been surging since May – it’s up 9% since then – and none of the precious metals, traditionally hedges against weak currencies, were left unaffected by its rise this month. Some even hit monthly and yearly lows.
The US economy is recovering strength, boosting the dollar’s attractiveness. The US Federal Reserve is poised to end its quantitative easing/bond-buying program of this month, tightening dollar liquidity. Finally, the European Central Bank has begun a dovish phase of monetary policy, enhancing the dollar’s outlook relative to the euro. The US dollar has already risen relative to the euro, sterling and the yen, not to mention all the emerging market currencies.
Beating Other Currencies
The dollar even advanced to its highest level in 3-weeks against the Pound on Thursday as the UK currency was weighed upon by comments made by a Bank of England policy maker and as the US currency found support from better than forecast jobless claims data.
According to an analysis by the BBC, the rally could last for years. On October 1 it rose over 110 yen for the first time in 6 years and was close to a 2-year high against the euro at $1.25.
Analysts say the dollar rally shows no signs of ending as sharp losses mount for other currencies.
“We think the dollar rally has another two years to go at least,” Chris Turner, global head of strategy at ING, told the BBC. “It’s come a long way, pretty quickly. I think a 5% advance over the next 6 months is very achievable,” Turner added, referring to the US dollar index, which measures the dollar against a basket of major currencies.
Outlook for Metals Buyers
This is all bad news for gold, platinum, silver and palladium. The investment metals lose their appeal when currencies are strong and even the industrial users of metals such as silver and platinum will enjoy lower prices and greater bulk-purchase negotiation power. Number one consumer China is still being dragged down by a sluggish economy and 5 years of unprecedentedly low interest rates from the Federal Reserve have fueled a binge of international borrowing in the developing world. With interest rates sure to go up soon the availability of credit could be taken away just as quickly as the high value of mined minerals such as gold and silver.
Lower prices, of course, are good for industrial buyers who should make big purchases soon, but there’s still no danger to waiting as the strong dollar doesn’t look as if it’s coming down any time soon.
Complete Global Precious Metal Prices
The monthly Global Precious Metals MMI® registered a value of 88 in October, a massive decrease of 8.3% from 96 in September.
US palladium bar prices dropped by 13.0% this month to $768.00 per ounce. After falling 12.3%, US silver finished the month at $16.97 per ounce. Chinese palladium bar prices fell 11.2% to $28.51 per gram. A 9.3% drop over the past month left Indian silver at $627.62 per kilogram. At $44.80 per gram, Chinese platinum bar was down 8.3% for the month. A 7.7% decline for Japanese palladium bar left the price at JPY 2,790 ($25.44) per gram. The price of US platinum bar fell 7.6% to $1,294 per ounce. The price of Chinese silver closed the month at $640.21 per kilogram after dropping 6.8%. Following a 6.6% decline in price, Japanese silver finished the month at $5.54 per 10 grams. A 5.6% decline for US gold bullion left the price at $1,209 per ounce. Japanese platinum bar prices fell 5.1% to $41.33 per gram. Chinese gold bullion prices dropped by 4.9% this month to $39.35 per gram. The price of Indian gold bullion closed the month at $436.08 per 10 grams after dropping 3.8%. Japanese gold bullion fell 1.0% to $38.86 per gram.
The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.