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How Inaction from the Major Global Banks Affected Precious Metals

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Part 2
How Inaction from the Major Global Banks Affected Precious Metals PART 2 OF 5

How Strongly Is the US Dollar Controlling Gold?

Dollar and gold stay hitched

The US dollar and precious metals, especially gold, have been taking their price direction from each other. Moreover, gold is more dollar-dependent than the other way round. The DXY Currency Index depicts the US dollar price movements.

How Strongly Is the US Dollar Controlling Gold?

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The DXY Currency Index is a trade-weighted basket that tracks the movement of the US dollar with a comparative performance of six major world currencies:

  • British pound
  • Canadian dollar
  • euro
  • Japanese yen
  • Swedish krona
  • Swiss franc

The DXY Index fell by 0.33% on April 28, 2016. The fall in the US dollar is often beneficial for the dollar-denominated assets, as the assets become cheaper for buyers from other countries.

A relatively cheaper dollar means higher bids for gold and silver and thus, prices surge. The DXY currency has dropped by about 5.3% since the beginning of 2016. During the same timeframe, gold has risen by a whopping 20.2% and silver has risen by 28.3%.

Miners and funds

The ultra-loose monetary policy in Japan and Europe is undoubtedly impacting the monetary tightening decision that the US Federal Reserve is considering. This is negatively affecting the US dollar and is helping precious metals.

Among the precious metal–based funds, the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the Sprott Gold Miners ETF (SGDM) have risen by 89.4% and 77.1%, respectively, on a year-to-date basis.

The mining shares that have climbed substantially include Agnico-Eagle Mines (AEM), Pan American Silver (PAAS), and Eldorado Gold (EGO). These three shares saw a rise of 64.5%, 130.2%, and 36%, respectively, on a year-to-date basis. These three companies together make up 10.6% of the VanEck Vectors Gold Miners ETF (GDX) portfolio.

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