Dollar Strength Sends Precious Metals into Free Fall
The US dollar index is experiencing its longest bull run since 2008, according to recent data. The 10-year yield closed at 5.11 percent on Wednesday, its highest level since July 2007, while the five-year yield crossed 5 percent for the first time in over a decade.
As interest rates rise, investors are taking notice of the strengthening dollar's impact on precious metals. The price of gold dropped $52 on the day and $60 in two sessions, settling at $4,324.40. Meanwhile, Brent oil settled near $103, and the dollar rose against every major currency.
Przemysław K. Radomski, CFA, notes that this rally is not a short-term phenomenon but rather a medium- or long-term trend. He points out that the USD Index has been on the rise for nearly 20 years, with a big trend upwards and an exceptionally bullish long-term setup.
Radomski also warns that a higher dollar makes US exports less competitive, high rates make credit more expensive, and higher oil prices are likely to follow. The geopolitical situation is supporting higher oil and a stronger USD, further complicating the picture for precious metals.