uploads///Gold price versus DXY Currency

What Did the US Dollar’s Fall Do to Gold?


Jun. 20 2016, Updated 5:34 p.m. ET

The rise of gold and silver

As 2016 started, most investors started pouring money into safe-haven assets like gold and Treasuries. Amid the unrest in Chinese markets, stocks and other investment alternatives seemed unsafe. Even currencies were vulnerable, and the US dollar plunged substantially with the possibility of further delayed rate hike.

But gold has surged by a whopping 21.4% YTD (year-to-date), and silver has risen by 27%. The changes in gold and other precious metals have been widely dependent on the US dollar in 2016. The US dollar has fallen by approximately 5.1% YTD on speculation of an interest rate hike. But the postponed interest rate rise saw the US dollar falling again. A country’s rate of interest and its currency tends to follow a close direct relationship.

As you can see, the US dollar inversely impacts precious metals as they are priced in the dollar. The higher the dollar gets, the more expensive it is for investors in other currencies to buy dollar-denominated assets like precious metals.

Article continues below advertisement

US dollar index

The US dollar index (DXY) measures the US dollar against a basket of six major world currencies, including the Swedish krona, the Canadian dollar, the pound, the euro, the Japanese yen, and the Swiss franc. DXY was trading at 94.2 on Friday, June 17, 2016.

The buoyancy of gold also helped mining funds and stocks. The VanEck Vectors Junior Gold Miners ETF (GDXJ) and the SPDR S&P Metals and Mining ETF (XME), for example, rose by 109.8% and 58.5%, respectively, following precious metal gains.

The mining companies that are among the top performers on a trailing-one-year basis include Kinross Gold (KGC), Barrick Gold (ABX), and First Majestic Silver (AG). These three mining companies have risen by 173.6%, 172.5%, and 274.6%, respectively. Together, these three make up 10.6% of the VanEck Vectors Gold Miners ETF (GDX).


More From Market Realist

  • Open sign on a sidewalk
    Macroeconomic Analysis
    Top Reopening Stocks to Play the Shifting Market Sentiment
  • Morgan Stanley sign and stock numbers
    Macroeconomic Analysis
    Morgan Stanley's Buyback Stock Picks in 2021
  • Black Wall Street sign is sign of ethical investing
    Macroeconomic Analysis
    Ethical Investing Stocks and Funds for Your 2021 Portfolio
  • New York City skyline and Goldman Sachs logo
    Macroeconomic Analysis
    Goldman Sachs: Options Trade Picks to Play Earnings Season Volatility
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.