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Gold Keeps a Close Eye on the US Dollar: What’s Next?

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US dollar and gold

Precious metals have a close-knit relationship with the US dollar. As precious metals are priced in US dollars, they tend to follow the changes in its value closely.

The rising US dollar dulls the appeal of gold for investors from other countries, as they must first invest in the costlier dollar to buy the greenback-based asset. Similarly, a fall in the dollar helps investors and lifts these assets.

The US dollar is tracked by the DXY Currency Index, which 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.

The US dollar has risen in the past month. DXY surged 2.8% on a 30-day-trailing basis. The rise in the dollar has shunned precious metals such as gold, silver, platinum, and palladium. They saw falls of 6.2%, 9.5%, 10.1%, and 12.6%, respectively, on a 30-day-trailing basis.

A performance comparison between gold and the US dollar can be seen in the above chart. The close inverse relationship between the two can be observed by the different movements of the two indicators.

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Technicals for precious metals

Call-implied volatility measures the changes in the price of a call option with respect to the variations in an asset’s price. Call-implied volatility fell for both gold and silver. The comparative stability of these metals indicates mixed opinions about their future directions.

The RSIs (relative strength index) for gold and silver are 31 and 34, respectively.[1. An RSI level of above 70 indicates that a stock has been overbought and could see a downward revision. An RSI of below 30 indicates that a stock has been oversold and could see an upward revision.] The sudden fall in precious metals over the past few days may be reversed, according to these RSI figures.

A reversal in precious metals prices could also bring about a directional move in funds such as the Global X Silver Miners ETF (SIL) and the VanEck Vectors Gold Miners ETF (GDX).

Mining companies that could follow a route similar to precious metals include First Majestic Silver (AG), Barrick Gold (ABX), and New Gold (NGD).

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