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Precious Metal ETFs Shine as Dollar Slides, Risks Mount

Precious metal-related exchange traded funds (ETFs) had a golden start to the new year, surging on a weak dollar that slipped to 2018 lows, ongoing struggle with a new variant of a more contagious coronavirus outbreak, and political risk from a Georgia runoff.

 

Among the best performing non-leveraged ETFs of Monday, the ETFMG Junior Silver Miners ETF (NYSEArca: SILJ) advanced 6.0%, VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ) increased 7.3%, Global X Silvers Miners ETF (NYSEArca: SIL) rose 7.6%, and VanEck Gold Miners ETF (NYSEArca: GDX) gained 7.1%.

 

Meanwhile, the SPDR Gold Shares (NYSEArca: GLD) was 2.1% higher and the iShares Silver Trust (SLV) was up 3.2% as Comex gold futures pushed 2.7% higher to $1,946.1 per ounce and Comex silver futures increased 3.8% to $27.4 per ounce.

 

The U.S. dollar has weakened to a two-and-a-half year low on the backs of aggressive fiscal and monetary stimulus measures. Meanwhile, gold has strengthened off the greenback’s weakness as a better store of value and cheaper hard asset for foreign buyers.

 

“There is the likelihood that we will see significant stimulus, which will lead to further declines in the dollar,” Jeffrey Sica, founder of Circle Squared Alternative Investments, told Reuters.

 

Georgia’s runoff election to decide the outcome of the majority for the U.S. Senate also added to the market risks and depreciation in the greenback.

 

“The Senate election this week could turn out to be a major disruptive event so gold is rallying on that,” Sica added.

 

If Democrats control both houses of Congress, a blue wave could potentially push through more aggressive fiscal spending in the form of a larger aid package to support struggling Americans.

 

“The chances of the Democrats winning both seats have increased of late. This would make it easier for newly elected U.S. President Biden to push through his planned expansionary fiscal policy,” Commerzbank said in a note.

 

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