US Dollar Index
Tracked by the Federal Reserve, the weekly US Dollar Index measures the value of the dollar compared to the currencies of its significant trading partners. A rising value means the dollar is stronger than other currencies and vice versa.
US dollar strengthens
In the week ended June 26, the US Dollar Index rose by 0.8%. This is also reflected in the 0.8% rise in the PowerShares DB USD Index Bullish Fund (UUP).
The US dollar fell in the week ended June 19 as a result of the Fed’s dovish tone and the downgrading of the US economic growth forecast, fromMarch’s projection of 2.3%–2.7% to 1.8%–2.0%. Since then, the US dollar has strengthened on strong US data including jobless claims and accelerated consumer spending. We’ll discuss these factors in detail later in the series.
The FOMC (Federal Open Market Committee) has previously said that US consumer prices needed to go up before it would consider an interest rate hike. Increased consumer spending gives market participants hope for stronger US economic growth in the second quarter, which would also be beneficial for the US dollar.
The US currency and gold
Dollar-denominated assets including gold are influenced by the strength of the dollar. A strong US dollar is negative for gold and vice versa.
So it’s important to track the direction of the dollar. This can point you in the direction that gold prices (GLD) and gold stocks are likely to take. Such stocks include the likes of AuRico Gold (AUQ), Alamos Gold (AGI), and Iamgold (IAG).
Together, these three companies contribute 2.9% to the VanEck Vectors Gold Miners ETF (GDX).