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Plunging US Dollar Provided Support to Gold

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DXY Currency Index

The US dollar index, or the DXY Currency Index, prices the dollar against major currency baskets like the euro, pound, krona, yen, Canadian dollar, and Swiss franc. The index fell 0.43% on Friday, October 9, 2015, offering support for precious metals prices. As the metals are dollar denominated, the falling DXY Currency Index can mean cheaper bullion investments for investors. Gold futures on COMEX have lost 2.2% on a YTD (year-to-date) basis while DXY has risen almost 5%. Similarly, as gold has risen 4.9% on a 30-day trailing basis, the dollar has lost 0.4%.

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ETFs and miners

The fall in the US dollar has also made some bullion-related investments rise. Leveraged ETFs like the Direxion Daily Jr. Bull Gold 3X (JNUG) and the Direxion Daily Gold Miners ETF (NUGT) have grown a whopping 23.1% and 38.5%, respectively, on a five-day trailing basis. The highly leveraged investments are extremely sensitive to price changes in precious metals. Mining companies that have seen a rise in their prices in the past week include New Gold (NGD), Barrick Gold (ABX), and Hecla Mining (HL). These three stocks constitute 10.3% of the VanEck Vectors Gold Miners ETF (GDX).

Gold does not yield interest, so it easily competes with assets like Treasuries when their rates are near zero. And, like most commodities, the metal is priced in dollars and becomes cheaper to buy for those using stronger currencies when the dollar weakens. Inflation concerns coupled with potential lagging in global economic activity are perhaps pushing the rate hike past 2015. Delays in the rate hike have given some breathing room to gold investors.

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