The dollar plunged on Wednesday following comments about the benefits of a weaker currency by U.S. officials at the World Economic Forum in Davos. This lifted the prices of precious metals and most other commodities sharply.
Gold prices shot up by $12 per ounce (+0.9%) to trade above $1,350/oz for the first time since September.
Spot silver rallied 35¢ (+2.1%) to $17.39/oz.
Platinum gained $8 (+0.8%) to $1,014/oz—almost a five-month high—and palladium was also up $8 (+0.75%) to $1,093/oz.
Davos Talk Sends Dollar to Three-Year Low
There was a swift (some might say panicked) reaction in the markets to the weak-dollar talk in Davos, Switzerland. A pair of cabinet members seemed to support the idea in comments made to the gathering of financial juggernauts.
The USD fell to more than a three-year low. The Bloomberg DXY index lost 0.8% to 89.4, its lowest since December 2014.
This continues a trend in the forex market that has gone on since President Trump was inaugurated a year ago.
Both the Secretary of the Treasury, Steve Mnuchin, and the Secretary of Commerce, Wilbur Ross, publicly extolled the benefits of a weak U.S. dollar for trade this week.
Although this has been the administration's consistent stance for the past year, many institutional investors abroad seem shocked because this is a 180-degree reversal of decades of so-called "strong-dollar" rhetoric from American leaders.
In fact, the open acknowledgement that a softer dollar is good for trade and exporters implies a trade war initiated by Washington is almost certainly on the horizon—if not already underway. Commerce Secretary Ross bluntly said "a trade war has been in place for quite a little while."
Winners From the Weaker Dollar
The falling dollar caused the precious metals, other commodities, and foreign currencies to surge.
A better-than-expected PMI reading in the eurozone also helped the euro climb by 0.7%. The British pound sterling jumped 1.4% to $1.42 and the Japanese yen was up 0.8% to ¥109.4.
Stronger currencies drove shares lower across Europe on Wednesday. The same impact was seen in Japanese stocks overnight. All three major indices on Wall St traded solidly in the green.
Crude oil prices lagged behind other commodities during the trading session. Copper and silver futures for March delivery were both up more than 3%.
Technical traders and computer algorithms would likely drive up precious metal prices in the short-term if gold has a breakout above $1,360/oz by next week. The expiration of options at the end of the month is often cause for volatility, as well.
Gold is currently testing its highest in five months, but a global aggregate of gold ETF holdings are near five-year highs.
Much of the rest of the financial news centered on corporate earnings. General Electric posted a $10 billion loss during the fourth quarter. Its shares are down over 40% in the past year.
The results coincided with preliminary reports that the Securities Exchange Commission (SEC) is investigating GE for a $6-billion irregularity in its insurance arm.
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