Gold prices, very much a dollar story (for now)

While we are bullish on precious metals (in particular silver) it is important to remember that many commodities are dollar denominated assets and for that reason they will often appreciate if the dollar weakens, this happens with oil, and it is currently happening in gold (see chart below).

The recent gains in gold are at least in part due to dollar weakness, price gold in euro or loonie and it looks relatively flat for the last seven months in which historic nominal highs were tested. Low carry costs and future inflation risks are in that mix as well, however, in the respect of an inflation hedge gold is still the master metal and silver has good upside potential as well. That doesn’t mean caution can be thrown to the wind in expectation of gains, although physical demand is up a reverse in financial gold plays could happen swiftly and undo much of the current range in a few days trading and for that reason holding metals should be (as we always advise) part of a play or portfolio and not THE portfolio.

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