How Closely Is Gold Linked to the US Dollar?



Gold and silver rose

Some investors most likely entered into panic mode at the very beginning of 2016 with growing instability in the Chinese markets, tumbling equity markets, and the oil market rout. Currencies were vulnerable, and one option where investors parked their money was precious metals. Gold has surged a whopping 21.2% on a YTD (year-to-date) basis. Silver has followed gold, rising 25.6% YTD. In fact, silver overtook the gold rally.

The changes in gold and other precious metals have been widely dependent on the US dollar in 2016. The US dollar has fallen 3.8% YTD on speculation of an interest rate hike. Weakness in the US dollar often gives some breathing room to dollar-denominated assets.

In the graph above, you can see the performance of gold compared to that of the US dollar. In the short term, the relationship may vary, but in the long term, the relationship is expected to hold true.

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US Dollar Index

The US Dollar Index (DXY) measures the US dollar against a basket of six major world currencies: the Swedish krona, the Canadian dollar, the sterling pound, the euro, the Japanese yen, and the Swiss franc. DXY was trading at 94.6 on Friday, June 10, 2016.

The buoyancy of the bullion also helped mining funds and stocks. The VanEck Vectors Junior Gold Miners ETF (GDXJ) and the SPDR S&P Metals and Mining ETF (XME) rose 5.6% and 6.6%, respectively, following precious metal gains.

The miners that are among the top performers on a trailing-one-year basis include Kinross Gold (KGC), Harmony Gold (HMY), and First Majestic Silver (AG). These three miners have risen 116%, 160.7%, and 140.4%, respectively. Together, the three miners make up 4.8% of the VanEck Vectors Gold Miners ETF (GDX).

Keep reading to see how the gold-silver ratio has reacted to market uncertainties.


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