uploads///Gold price versus DXY Currency

The US Dollar’s Strength Means Weakness for Precious Metals


Apr. 27 2016, Published 3:17 p.m. ET

Dollar-denominated assets

Gold, silver, and palladium saw their prices fall marginally on April 22, 2016. These price falls likely occurred due to the relative gains in the US dollar, represented by DXY.

DXY prices the US dollar against a basket of six major world currencies, including the Swiss franc, the Japanese yen, the Swedish krona, the euro, the Canadian dollar, and the British pound. DXY is a trade-weighted basket, and it rose almost 0.55% on April 22.

In the past week, the Bank of Japan put forward its intention to further expand its monetary policy by keeping interest rates negative. The US dollar thus rose the highest against the Japenese yen on Friday.

The strength of the US dollar means weakness for dollar-denominated assets such as precious metals.

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Miners and funds

Gold closed at $1,230 per ounce on April 22, and silver fell from its $17 level to close at $16.9 per ounce. Volatility in silver prices stayed close to 30% in the past few trading days.

The surge in precious metals prices has significantly helped mining-based funds that take their price fluctuations from the metals. Funds such as the Sprott Gold Miners ETF (SGDM) and the leveraged Direxion Daily Gold Miners ETF (NUGT) have risen a whopping 66.4% and 235.5%, respectively, on a year-to-date basis.

The mining shares that have seen the best returns in the current year so far include Yamana Gold (AUY), Harmony Gold (HMY), and Sibanye Gold (SBGL). These three stocks have seen rises of 129%, 233.7%, and 136.5%, respectively, on a year-to-date basis. Together, these companies make up ~8% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).


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