uploads///A stronger dollar is a negative for gold

The Dollar Continues to Adversely Affect Gold


Jul. 31 2015, Published 2:03 p.m. ET

Inverse correlation

It’s well documented that there’s a tendency for an inverse relationship between gold and some economic fundamentals. One of them is the US dollar. The US Dollar Index (DXY) rose in the last month close to 1.81%, whereas gold fell close to 6.78% in the last trading month.

Since gold is denominated in dollars, a rising US dollar will cost more for investors, pushing them further away from the precious metal, which subsequently falls in price. The inverse relationship with the US dollar is mimicked by other precious metals such as silver, platinum, and palladium. Theses metals have also lost value on a 30-day trailing basis.

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What is the US Dollar Index?

The US Dollar Index (DXY) consists of six major world currencies. These currencies are the euro, the yen, the pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The last trading return for DXY currency was 0.19%. It has gained close to 7.69% on a year-over-year basis.

Just like an inverse relationship with gold, gold miners also have an inverse relationship with DXY. Mining ETFs such as the SPDR S&P Metals and Mining ETF (XME), the VanEck Vectors Junior Gold Miners ETF (GDXJ), and other leveraged ETFs like the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the ProShares Ultra Silver (AGQ) all fell last month.

The last trading day was positive, however, for mining companies like Goldcorp (GG), Newmont Mining (NEM), and Royal Gold (RGLD) that gained 1.66%, 0.17%, and 1.05%, respectively. Yamana Gold (AUY) lost 1% during the previous trading day. Together, these make up 21.45% of the VanEck Vectors Gold Miners ETF (GDX).


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