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The Rise of the US Dollar Leads to the Fall of Gold

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Jan. 13 2016, Updated 11:47 a.m. ET

Gold slips lower

The precious metals and the US dollar have a close inverse relationship. Gold and silver have gained strength during the recent turbulent times. Gold has risen by about 2.2% since the start of the new year, whereas silver has marginally fallen by 0.06% since the start of the year due to losses in the past three days as the market stabilized. The US dollar, on the other hand, has risen 0.55% since the start of the new year.

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The US dollar, as measured by the US Dollar Index (DXY), rose 0.2% yesterday. DXY prices the dollar against the Swiss franc, the euro, the Japanese yen, the pound sterling, the Canadian dollar, and the Swedish krona. A higher dollar fends off investors from other countries, as the dollar is now more expensive for them. The precious metals including gold, silver, platinum, and palladium all ended the day in the red. These four metals fell 1%, 0.83%, 0.9%, and 0.95%, respectively, in yesterday’s trade.

Dollar-denominated assets

The rise of the US dollar is also supported by last week’s payroll numbers, which came out positive and boosted the economy. The strength of the currency is harmful to dollar-denominated assets, as investors may lose interest in expensive greenback assets. The fall in the precious metals also affected leveraged dollar-based ETFs like the Direxion Daily Junior Gold Miners Index Bull 3X ETF (JNUG) and ProShares Ultra Silver ETF (AGQ). These two ETFs fell 8% and 1.1%, respectively, in yesterday’s trade.

Among US-based mining stocks, Alacer Gold Corporation (ASR), Hecla Mining Company (HL), and Coeur Mining (CDE) fell 2.3%, 6.6%, and 9.4%, respectively, in yesterday’s trade. These three stocks together make up 2.7% of the VanEck Vectors Gold Miners ETF (GDX), which fell 2.2% yesterday.

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