The rise of the dollar while gold is steady
As the U.S. dollar edged higher on Tuesday, gold gave up previous gains, but a drop in Treasury yields and escalating recession worries kept the price of the metal close to a four-week high.
After reaching its highest level since July 5 at $1,780.39 per ounce earlier in the session, spot gold (XAU=) was flat at around $1,771.29 per ounce. At $1,787.10, U.S. gold futures (GCv1) were steady.
Falling U.S. real rates have helped gold in recent days, and Friday’s payroll figures are the next significant data point for the commodity.
When there is a bull market in stocks, Foreign Institutional Investors (FIIs) inject enormous quantities of capital into the markets as a result of the upbeat view of the market. One requires local currency to invest in local stocks. The FIIs are now exchanging dollars for local money. As a result, the local currency is in higher demand, which causes its value on the Forex markets to rise quickly. Bearish markets have a similar effect on the economy.
Demand and supply for commodities change along with price changes. If the amount or cost of goods imported rises, the value of the local currency falls in an economy that imports goods. Typically, commodities like gold, oil, precious metals, etc. are traded using US dollars. There is a surplus of local currency when regarding its usage of it. This is because it is traded on overseas markets to earn dollars. The local currency so loses value as a result of an excess of supply and a decline in demand.
Dollar And Gold
Benchmark The opportunity cost of keeping non-interest-paying bullion decreased as U.S. 10-year Treasury yields (US10YT=RR) touched a four-month low, and the dollar index (DXY) climbed 0.2 percent after earlier reaching a four-week low. Investors are closely monitoring macroeconomic signs as Fed Chair Jerome Powell stated that decisions on future interest rates will be based on incoming data.
The dollar will continue to fall during August as many macroeconomic indicators in the U.S. start to look worse, according to Edward Meir, an analyst with ED&F Man Capital Markets. This might enable gold to move slightly higher near mid $1,800.
Traders are also keeping an eye on any potential escalation in Sino-U.S. The price of spot silver (XAG=) dropped by 0.5 percent to $20.23 per ounce, the price of platinum (XPT=) down by 0.1 percent to $905.54, and the price of palladium (XPD=) decreased by 0.8 percent to $2,176.15.
The price of gold is correlated with the shares of gold miners or businesses that extract gold from the earth. However, the gold mining industry is challenging. The mining corporation has no control over the primary source of income, the gold price. In addition, costs—including labor, machinery, and the incredibly expensive mining operations—do not alter significantly with changes in the price of gold.
Therefore, when the price of gold falls below, or very close to, the cost of production, a miner may quickly go out of business. However, because their costs are about the same, the profitability of gold mining enterprises increases significantly when the price of gold rises.
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