Gold’s Close-Knit Relationship with the US Dollar

On Thursday, June 9, 2016, the US Dollar Index (DXY) rose by 0.14%. The unemployment claims number that came out on June 7 showed that the initial jobless claims fell to 264,000 in early June, providing some evidence that the labor market isn’t completely unraveling. The disappointing report on June 3 indicated that just 38,000 jobs were created in May, well below expectations.

The DXY measures the dollar’s strength against a trade-weighted basket of six major currencies—the euro, the yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The US dollar has retreated over the past month, falling 0.22% on a trailing-30-day basis. It has fallen 4.6% YTD (year-to-date).

The US dollar and precious metals have a close-knit relationship. The strength of the US dollar weighs on dollar-denominated assets such as gold and silver. Investors in other currencies have to buy an expensive dollar against their home currency to invest in precious metals.

The funds that also closely followed the gains in the precious metals include the iShares Gold Trust (IAU) and iShares Silver Trust (SLV). These two funds rose 0.57% and 1.6%, respectively, on Thursday and have risen 19.8% and 24.9%, respectively, on a YTD basis.

The miners that also closely follow gold and the US dollar include Agnico Eagle Mines (AEM), Kinross Gold (KGC), and IAMGOLD (IAG). These three miners have risen 13.3%, 22.6%, and 21.5%, respectively, on a trailing-five-day basis. Together, they make up 8.9% of the VanEck Vectors Gold Miners ETF (GDX).