What’s Driving Gold and the US Dollar?



Dollar and gold

The firm link between gold and the US dollar continued to hold as of May 25. As gold is a dollar-denominated asset, any rise or fall in the dollar brings about an opposite reaction in precious metals. The US dollar is predicted by the DXY Currency Index, which measures the dollar’s strength against a trade-weighted basket of these six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. The US dollar has increased during the past month.

What's Driving Gold and the US Dollar?

DXY surged by 0.74% on a 30-day trailing basis. During the same time frame, precious metals continued to have a downward sentiment. All four precious metals—gold, silver, platinum, and palladium—plunged by 1.1%, 4.1%, 0.99%, and 9.9%, respectively, during the same period.

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Mining companies and funds buoyed

The growing confidence in the US economy combined with recent upbeat economic numbers—not to mention the impending rate hike by the US Federal Reserve—are crucial elements that impact the US dollar under the current scenario. The surprisingly hawkish outlook in the economy caused a rally in the US Treasury ten- and two-year yields, which further sank precious metals.

But notably, the fall in precious metals on May 25 spared the leveraged Direxion Daily Gold Miners Fund (NUGT) and the Proshares Ultra Silver (AGQ), which rose 7% and 0.93%, respectively, on the day. Primero Mining (PPP), Hecla Mining (HL), and Eldorado Gold (EGO) also rose. These three companies together make up 6.1% of the Vaneck Gold Miners Fund (GDX).


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