DXY and gold
Gold prices have been closely tied to the US dollar. As the precious metals and other commodities are all greenback-denominated assets, the rises and falls in the dollar affect them. Over the longer term, the commodities and the dollar are inversely related, whereas short-term price reactions may vary.
The below chart shows the performance of gold and the DXY currency index. The DXY currency index prices the dollar aginst a basket of six major world currencies. However, it doesn’t include the Chinese renminbi (or yuan).
China isn’t very happy with the supremacy of the US dollar in the global financial markets. In its attempt to make yuan usage more popular and eventually make it the preferred reserve currency of all nations, it has played the yuan-denominated gold benchmark.
The new benchmark may do little to the gold price in the short term. However, it may eventually play a greater role in the determination of the gold price just as the US dollar does today.
The changes in the US dollar may also impact the quotes of precious metal-based funds like the iShares Silver Trust (SLV), the VanEck Vectors Junior Gold Miners ETF (GDXJ), and the leveraged Direxion Daily Gold Miners (DUST).
Chinese retail demand
The recent surge in the precious metal prices over the last week resulted in heavy buying in silver in Shanghai, which also triggered gold buying, helping the newly established yuan fix. At least the Chinese retail demand will quickly switch to the new yuan gold. Also, the China’s ever-growing gold demand will further air the influence of yuan on the global gold markets.
The internationalization of yuan gold is one of the major motives behind this yuan fix, thus aiding the yuan gold pricing mechanism.