uploads///Gold Price versus DXY Currency

Why the US Dollar’s Rise Has Scared Gold Investors


Mar. 28 2016, Published 10:40 a.m. ET

Dollar builds muscles

Recent comments by hawkish Federal Reserve members about interest rate hikes have given strength to the US dollar. Amid the global crisis, the confidence of the Federal Reserve seemed to be shaken, and the US economy was lacking the growth needed for a rate hike this month. However, the Fed still plans to raise the key interest rate twice this year.

We’ll use the US Dollar Index (DXY) to track the movement of the US dollar. DXY prices the US dollar against a basket of six major trade-weighted world currencies, including the Swedish krona, the Japanese yen, the Canadian dollar, the British pound, the euro, and the Swiss franc. The DXY currency has fallen about 2.4% on a year-to-date basis.

However, recent statements by Federal Reserve members have bolstered the US dollar, and the index has risen 1.2% over the last five trading days. DXY posted a gain of 0.13% on Thursday, March 24. The Brussels attack has also led to the rise of the dollar as a safe-haven asset.

The dollar and the precious metals are supposed to have an inverse relationship. In the short run, this isn’t always the case. However, the long-term inverse relationship is evident.

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Miners plummeted

Gold futures for April delivery have fallen about 3.4% on a trailing-five-day basis. During the same timeframe, silver, platinum, and palladium have plummeted 5.2%, 3.7%, and 2.7%, respectively.

The fall of these metals has brutally affected the Global X Silver Miners ETF (SIL) and the VanEck Vectors Junior Gold Miners ETF (GDXJ). These two funds have fallen 3.9% and 3%, respectively, over the past five trading days. The miners that saw a downfall in their share price include companies like Barrick Gold Corporation (ABX), Randgold Resources (GOLD), and Eldorado Gold Corporation (EGO). These three funds have fallen 8.3%, 3.6%, and 10%, respectively, on a trailing-five-day basis.


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