Despite the falls in buck-denominated gold, silver and copper prices, the U.S. dollar hasn't exactly been strong with the British pound/U.S. dollar (GBP/USD) currency pair and EUR/USD remaining bid throughout the week. But the dollar has performed much better elsewhere.
Thanks to a generally stronger dollar amid heightened expectations of a faster-tightening cycle from the Fed, market participants have apparently reduced their holdings in buck-denominated precious metals.
Gold's stronger showing so far has been in response to several things, including a “risk off” trade that was triggered Tuesday afternoon, but mainly due a weaker dollar. Indeed, something rather odd happened across the financial markets on Tuesday afternoon. Up until 15:00 GMT it had appeared as if it was “risk on” at the start of the New Year: the UK’s FTSE 100 had broken to a new record high, crude oil prices had surged to multi-year highs and the euro/U.S. dollar (EUR/USD) currency pair had dropped to a new 14-year low.
European stocks and the euro rose on Monday, battling back as investors bet that Prime Minister Matteo Renzi's resignation after voters rejected his constitutional reforms would not trigger a snap election in Italy.
The dollar gained ground against the yen on Tuesday after a roller-coaster 24 hours which traders say may just be a precursor to three weeks of risk-packed events for the $5 trillion a day currency market.
Investors have suddenly shifted to a “risk off” mode as a result of the recent shift in momentum towards Donald Trump being declared as the possible winner of the U.S. election in a couple of days’ time.