Inverse Relationship: Precious Metals and the US Dollar



Gold and the US dollar

On December 18, the loss in the US dollar increased precious metal prices. Precious metals are dollar-denominated assets. A weaker dollar enhances the price. The dollar-denominated assets get cheaper for investors in other currencies. Also, the loss in the equities market buoyed precious metals’ prices.

Precious metals’ prices are inversely related to the price of the US dollar. The US dollar is depicted by the DXY Currency—it prices the dollar against the six major world currencies. It fell by about 9.4% on a YTD (year-to-date) basis. In contrast, gold rose by 9.8% on a YTD basis.

The above chart shows the historical price performance of gold and the US dollar.

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Mining sector

Leveraged mining-based ETFs like the Direxion Daily Gold Miners ETF (NUGT) and the ProShares Ultra Silver (AGQ) rose by 6.2% and 5.9%, respectively, on Friday. The rise in the precious metals extended to the mining sector. Mining-based companies like Coeur Mining (CDE), Barrick Gold (ABX), and AngloGold Ashanti (AU) rose by 5.6%, 4.2%, and 5.4%, respectively, on the same day. Coeur Mining and AngloGold Ashanti are trading significantly below their 100-day moving prices. They’re trading at a 9.2% and 9.6% discount from their 100-day moving averages. In contrast, Barrick Gold is near its 100-day moving average.

Together Coeur Mining, Barrick Gold, and AngloGold Ashanti account for 11.8% of the price fluctuations in the VanEck Vectors Gold Miners ETF (GDX). GDX rose by 1.8% in the last trading month. It fell by 26.4% on a YTD basis.


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