Will US Dollar Strength Continue to Have Negative Impact on Gold?
The US dollar (UUP) has fallen nearly 7.0% year-to-date (or YTD) in 2017. There are many factors contributing to this decline. The disappointment stemming from Trump’s election agenda is number one. Trump’s promises of tax cuts and infrastructure spending sent the US dollar to a 14-year high in January 2017, only to weaken later. The gains in other currencies also added to the dollar’s woes. Of course, expectations surrounding a potential Fed interest rate hike in December are also impacting the dollar.
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Recovery in USD
The US dollar has just started recovering. The gradual rate hikes from the Fed and its hawkish stance are leading to this strength in the Dollar Index. On the other hand, the US economic indicators have been positive lately. Also, the expectation for tax reform continues to rise. These factors are also adding strength to the US dollar.
According to the latest COT (Commitment of Traders) report released on November 3, 2017, large speculators and traders continue to cut their bearish positions in the currency. The bearish positions for the dollar have now fallen for five straight weeks to their lowest level since July 18, 2017.
US dollar and gold
US-denominated assets are influenced by the movements of the dollar, and since gold is also denominated in the US dollar, its fortunes are also tied to the dollar among other factors. Gold prices, in turn, impact equities such as B2Gold (BTG), Gold Fields (GFI), Alamos Gold (AGI), and Harmony Gold (HMY). The dollar also influences funds such as the VanEck Vectors Gold Miners ETF (GDX).