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On Tuesday, gold prices touched lows it hasn’t since June this year. The metal was affected by a strong U.S. dollar, supported by positive economic data as well as depreciation of other strong currencies. Though not always, gold prices and the U.S. dollar mostly tend to move in opposite directions.
December gold prices broke below the psychological level of $1,300 an ounce on Tuesday, to settle at $1,269.70 an ounce, falling 3.3%. The price is the lowest the metal has touched since the Brexit vote in June, while the one day loss is the biggest since Dec 2013.
Why is the Dollar Rising?
The U.S. dollar rose roughly 0.5% on Tuesday and touched its highest level in nearly two months.
Since the Fed announced its decision to raise rates in 2016, the meetings as well as the run-up to them have spiked volatility in the money markets. While the September meeting left the rates unchanged, it was stated that the case for an increase had strengthened. The Fed has been holding off a hike until the economic conditions improve and the release of recent U.S. economic data indicates that the economy is performing well. The ISM Manufacturing PMI data released on Oct 3 shows that the manufacturing sector in the economy expanded in September after a contraction in August.
A hike in rates is expected at least once before the year is over. The next meeting in November is not likely to see the FOMC raising rates due to its proximity to the elections. Nevertheless, the possibility cannot be completely ruled out. On Oct 3, Cleveland Fed President, Loretta Mester, stated that next month could see the rates being raised, particularly if the economic data released until then is strong. Employment data is scheduled to release this Friday which may particularly affect the decision. In case of a rate hike, the dollar will further appreciate, making dollar-denominated commodities, gold in particular, less appealing.
Additionally, the U.S. dollar is positively affected if another strong currency faces a decline. The ECB is believed to be forming an informal consensus to wind down bond purchases before the conclusion of the quantitative easing program, which further strengthens the dollar.
Impact on Gold Mining Companies
Stocks of gold mining companies are highly susceptible to volatility in gold prices. The drop in the yellow metal's prices on Tuesday led these companies’ stock prices to lose value as well. Some of the major impact on the share price of gold mining companies is noted below:
Shares of Newmont Mining Corporation (NEM - Free Report) fell 10.1% to close at $34.25.
Shares of Kinross Gold Corporation (KGC - Free Report) declined 13.1% to close at $3.58.
Shares of Harmony Gold Mining Company Limited (HMY - Free Report) fell 10.6% to close at $3.12.
Shares of Barrick Gold Corporation declined 11.2% to close at $15.45.
Shares of B2Gold Corp. (BTG - Free Report) fell 10.3% to close at $2.35.
Shares of Goldcorp Inc. slipped 8.7% to close at $14.41.
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Why Were Gold Mining Stocks Down on Tuesday?
On Tuesday, gold prices touched lows it hasn’t since June this year. The metal was affected by a strong U.S. dollar, supported by positive economic data as well as depreciation of other strong currencies. Though not always, gold prices and the U.S. dollar mostly tend to move in opposite directions.
December gold prices broke below the psychological level of $1,300 an ounce on Tuesday, to settle at $1,269.70 an ounce, falling 3.3%. The price is the lowest the metal has touched since the Brexit vote in June, while the one day loss is the biggest since Dec 2013.
Why is the Dollar Rising?
The U.S. dollar rose roughly 0.5% on Tuesday and touched its highest level in nearly two months.
Since the Fed announced its decision to raise rates in 2016, the meetings as well as the run-up to them have spiked volatility in the money markets. While the September meeting left the rates unchanged, it was stated that the case for an increase had strengthened. The Fed has been holding off a hike until the economic conditions improve and the release of recent U.S. economic data indicates that the economy is performing well. The ISM Manufacturing PMI data released on Oct 3 shows that the manufacturing sector in the economy expanded in September after a contraction in August.
A hike in rates is expected at least once before the year is over. The next meeting in November is not likely to see the FOMC raising rates due to its proximity to the elections. Nevertheless, the possibility cannot be completely ruled out. On Oct 3, Cleveland Fed President, Loretta Mester, stated that next month could see the rates being raised, particularly if the economic data released until then is strong. Employment data is scheduled to release this Friday which may particularly affect the decision. In case of a rate hike, the dollar will further appreciate, making dollar-denominated commodities, gold in particular, less appealing.
Additionally, the U.S. dollar is positively affected if another strong currency faces a decline. The ECB is believed to be forming an informal consensus to wind down bond purchases before the conclusion of the quantitative easing program, which further strengthens the dollar.
Impact on Gold Mining Companies
Stocks of gold mining companies are highly susceptible to volatility in gold prices. The drop in the yellow metal's prices on Tuesday led these companies’ stock prices to lose value as well. Some of the major impact on the share price of gold mining companies is noted below:
Shares of Newmont Mining Corporation (NEM - Free Report) fell 10.1% to close at $34.25.
Shares of Kinross Gold Corporation (KGC - Free Report) declined 13.1% to close at $3.58.
Shares of Harmony Gold Mining Company Limited (HMY - Free Report) fell 10.6% to close at $3.12.
Shares of Barrick Gold Corporation declined 11.2% to close at $15.45.
Shares of B2Gold Corp. (BTG - Free Report) fell 10.3% to close at $2.35.
Shares of Goldcorp Inc. slipped 8.7% to close at $14.41.
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>