Precious metals including gold, silver, platinum, and palladium, as well as other commodities, are priced in the US dollar. When the dollar rises, investors should expect the prices of these commodities to fall. The main reason behind this fall is the effect of the high US dollar on the buyers of other currencies. About 60% of the time, this relationship can be observed.
There is an intrinsic correlation between gold prices and the US dollar. When the demand for the US dollar falls, banks, as well as investors around the world, invest more in gold. Gold and the US dollar are both used as a hedge against uncertainties and are favorites for central banks worldwide.
Other gold-based investments
There have been instances where the US dollar and dollar-denominated precious metals move in the same direction. During times of economic instability and turbulence, a few investors may flock to gold, whereas others may opt for the US dollar. Under such circumstances, both may rise in value.
The US dollar may take an opposite route to gold and other gold-based assets such as the SPDR Gold Shares ETF (GLD) and the iShares MSCI Global Gold Miners ETF (RING). Mining equities such as Hecla Mining (HL), Royal Gold (RGLD), and Newmont Mining (NEM) are all dollar denominated and can also be negatively impacted by the rise in the US dollar. These three companies together contribute 11.3% to the VanEck Vectors Gold Miners ETF (GDX).