Precious Metal ETFs Fall as Dollar Gains Strength

A strong U.S. dollar on Thursday caused precious metals to fall as seen in exchange-traded funds (ETFs) like the SPDR Gold Shares (NYSEArca: GLD) and the iShares Silver Trust (NYSEArca: SLV).

GLD fell 1.36 percent while SLV fell 1.71 percent. Gold prices reached a three-week low and silver touched down to a three-month low as the dollar rose to a multi-month high.

Another precious metal, palladium, fell 16 percent from the previous week’s highs. In turn, the Aberdeen Standard Phys PalladiumShrs ETF (NYSEArca: PALL) fell 6 percent–a move, that to some analysts, was forthcoming given the precious metal’s serendipitous rise past gold in terms of price per ounce.

“In our opinion, a correction of the palladium price was long overdue,” Commerzbank analysts said in a note.

Despite the fall in gold prices, it could be viewed as a temporary setback. A key technical level to watch could mean a short-term pullback is portending to a bullish move ahead based on some analysts’ forecasts.

“We’re really going to need for it to break above the key level which is a range of $1,360 to $1,380. If we get above that $1,380 level, that was the top in 2014, 2016, 2017 and 2018,” said Miller Tabak equity strategist Matt Maley. “Whenever you get multiple touches over several different years, if you can finally break above that level, it really takes off. In other words, it confirms that the long-term trend has changed.”

Gold has long been used as a safe haven asset, particularly when the value of the dollar declines. Furthermore, it provides a hedge for inflation since its price typically rises in conjunction with consumer prices.

As such, it was no surprise when the dollar index resulted in downward pressure on precious metals.

With the idea that a permanent trade deal is already priced into U.S. equities, news of the actual deal materializing could send equities higher or cause a sell-off as a result of an overbought condition–something that could help boost precious metals. Whether it does or doesn’t, volatility is certain, according to some analysts.

“The U.S. and China are holding high-level trade talks that are taking place in Beijing,” wrote Jim Wyckoff of Kitco News. “The key figures were meeting for dinner Thursday evening. There is no clear consensus on the eventual outcome of the U.S.-China trade talks, which means the final result could cause volatility in markets.”

Meanwhile, traders were taking advance of the Direxion Daily Gold Miners Bear 3X Shares (DUST) and Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST), which were up 8.07% and 10.65% respectively at the close of trading Thursday.

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