Gold suffered a great deal in November and December mainly due to the speculation of rising interest rates and the surge in the US dollar. The US dollar index rose to a 14-year high. The US dollar index measures the greenback against a basket of six major world currencies. As the Fed boosted the interest rate on Treasuries last month, the dollar rose significantly. The rising interest rate on the US Treasuries makes the US dollar more lucrative.
Movements in gold and the US dollar are shown in the following graph. As you can see, they mainly have an inverse relationship. The higher the dollar, the lower the demand for dollar-denominated assets. Optimism in the overall US economy could boost the dollar.
The correlation between gold and the US dollar index is -0.36, which means that about 36.0% of the time, gold and the dollar move in opposite directions. Silver’s correlation with the US dollar index is -0.32.
Changes in the dollar’s movements can be seen in mining funds such as the Physical Swiss Gold Shares (SGOL) and the Physical Silver Shares (SIVR). These two funds saw massive year-to-date rises alongside precious metals, but they fell in the past month.
The rising dollar can also have an adverse impact on mining stocks. Some of the mining stocks that fell during the end of 2016 due to falling precious metals include Yamana Gold (AUY), Gold Fields (GFI), Sibanye Gold (SBGL), and Coeur Mining (CDE).
On the first trading day of 2017, the US dollar climbed and it is back near its 13-year high.