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.
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).