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How Gold Prices and the Dollar Correlate This Week

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DXY Currency

William Dudley, the president of the Federal Reserve Bank, New York, mentioned on Monday, September 28, that the Fed is on track to hike rates before the end of the year and could reach its targeted goal for inflation at some point in 2016. In its inflation forecasts earlier this month, the Fed estimated that inflation would reach 1.7% by the end of next year and not hit 2.0% until 2018.

The US Dollar Index, also known as the DXY Index, measures the strength of the greenback versus a basket of six other major currencies. The currency basket includes the euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc. The DXY fell more than 0.20% to an intraday low of 96.04 on Monday. Last week, the index surged above 96.85 to reach its highest level in September.

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The above DXY Currency chart gives us an almost inverse relationship between gold price and the dollar. Denominated commodities such as gold get more expensive for foreign purchasers when the dollar appreciates. DXY has a 30-day trailing loss of 0.35% and a year-to-date, or YTD, gain of 6.52%. Comparing the dollar to gold, it has a 30-day trailing loss of 0.63% and has fallen by 4.68% on a YTD basis.

Precious metals and miners

Other precious metals, like silver, for December delivery on September 28 fell a further 3.68% to 14.555 per ounce. However, it marginally gained 0.24% on the next day, September 29, and closed at $14.573 per ounce. Platinum, however, continued the rout and further plunged 0.48% and $918, with a minimum of $899.6 per ounce. Palladium saw an up-day and gained 0.90%, closing at $657.7 per ounce.

The iShares Gold Trust (IAU) and SPDR S&P Metals and Mining ETF (XME) have lost 0.73% and 19.66% respectively on a 30-day trailing basis. Gold miners have gone through carnage with falling metals prices. With gold having fallen ~38% since its peak of ~$1,900, mining stocks like Royal Gold (RGLD), Sibanye Gold (SBGL), and Alamos Gold (AGI) have lost ~23%, 46%, and 54%, respectively, on a YTD basis. These three stocks make up 7.7% of the VanEck Vectors Gold Miners ETF (GDX).

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