The Inverse Relation Between Gold and the Dollar Held Strong



Inverse relationship

Precious metals saw another day of losses on May 4, 2016. Gold, silver, platinum, and palladium fell significantly by 1.4%, 1.1%, 1.5%, and 2%, respectively, on the day.

Precious metals rose tremendously due to the fall of the US dollar. The US dollar then rebounded from its losses, which weighed down the dollar-denominated precious metals.

The US dollar is depicted by the DXY currency index in the chart above. The DXY index measures the dollar’s strength against a trade-weighted basket of six major currencies: the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.

DXY rose by a marginal 0.05% on May 4. Overall, the index has seen a fall of ~1.5% during the past month. Year-to-date, DXY has fallen by 5.5%.

The chart above measures the short-term performance of gold versus DXY. A clear inverse relation between gold and the US dollar can be seen.

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Funds and miners impacted

The fluctuations in gold and silver prices, which move in accordance with changes in the US dollar, also significantly affect the prices of the funds that take their prices from the precious metals.

Funds that have seen surging prices in 2016 include the SPDR S&P Metals and Mining ETF (XME) and the Global X Uranium ETF (URA). These two funds have seen rises of 52.8% and 78.1%, respectively, year-to-date.

The mining shares that have risen substantially include Buenaventura (BVN), Hecla Mining (HL), and Kinross Gold (KGC). These three shares saw rises of 19.7%, 38.1%, and 43.6%, respectively, during the last 30 trading days. Together, these companies make up 7.8% of the changes in the VanEck Vectors Gold Miners ETF (GDX).


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