Tumbling Dollar Unleashes Precious-Metals Rally

By Amrith Ramkumar

The dollar fell for the fourth consecutive session, highlighting investor concerns about rising coronavirus cases in many states and aiding a rally in precious metals such as gold and silver.

The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, fell 0.1% to 89.73. extending a recent slide. The gauge is at its lowest level since early March and 7.5% below a peak hit that month.

Rising coronavirus cases in many parts of the U.S. have hurt the currency, with investors seeing rosier economic prospects in countries in Europe and Asia that have contained the pandemic more effectively.

The weakening of the dollar marks a reversal after years of strength in the currency wrong-footed many investors. The dollar remained resilient in recent years because the U.S. was perceived to have a much stronger economy than many of its peer nations.

Now the softening dollar is aiding rallies in other asset classes. That includes a surge in precious metals, which, like other investments priced in dollars, become cheaper for overseas buyers when the dollar depreciates.

Most actively traded gold futures rose 1.1% to $1,865.10 a troy ounce, posting their highest close in nearly nine years. Prices are within 1.4% of their 2011 record close of $1,891.90 and have surged with nervous investors seeking shelter from the coronavirus.

Silver futures also continued soaring, advancing 7.4% to $23.144 a troy ounce to nearly seven-year highs and bringing their climb for the week to 17%.

Another reason for a falling dollar and rising bullion prices is that traders are bracing for a rise in inflation as a result of stimulus programs from the world's governments and central banks. Surging consumer prices would devalue paper money and make precious metals more appealing stores of value, investors say.

All of the factors hurting the dollar and lifting precious metals relate back to rising coronavirus cases in the U.S., the main driver of the market action, James Steel, chief precious-metals analyst at HSBC, said in a note.

A weaker dollar also affects other haven assets such as Treasurys by lowering the cost for overseas investors to hedge against the risk of a decline in the currency, supporting the net interest of the securities. Prices of Treasurys have remained steady in recent weeks, keeping yields -- which fall when prices rise -- in a tight range.

Traders are also concerned that some of the recent moves in currencies and commodities are being driven by investors acting on momentum, buying precious metals because they are going up and betting that the dollar's downward spiral will continue. Such sharp moves can make markets vulnerable to quick reversals.

Elsewhere in commodities Wednesday, U.S. crude-oil futures edged down less than 0.1% to $41.90 a barrel after weekly government data showed a surprising increase in domestic stockpiles.

Some analysts are concerned that a nascent recovery in fuel demand is stalling in areas with rising coronavirus cases, keeping crude in a recent trading range. Still, prices have pared some of their 2020 losses and on Tuesday hit their highest level since early March.

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