Gold and DXY
The US dollar and precious metals have a close relationship. The recent fall in the US dollar may cheer up gold investors while the fall in precious metals may not necessarily do the same for US dollar bulls. The strength of the US dollar impacts precious metals significantly. The DXY (US Dollar Index) measures the dollar’s strength against a trade-weighted basket of six major currencies: the euro, the yen, the pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The US dollar has increased during the past month. DXY surged a whopping 0.23% on a 30-day trailing basis. However, it fell about 1.5% on a five-day trailing basis.
A decline in the dollar often boosts the dollar-denominated precious metals. It’s entirely possible that the weakness in the US economic data releases may spread to the US dollar and further lift the dollar-based assets.
An expensive dollar decreases the appeal of dollar-based assets while a cheaper dollar boosts their prices. The SPDR Gold Trust (GLD), which closely tracks gold, rose by 2.8% on Friday. Other mining-based funds like the SPDR S&P Metals and Mining ETF (XME) also rose 4.9% on the same day.
Mining stocks, which have seen losses during the past few weeks due to the tumbling precious metal prices, rose on Friday. These stocks include Cia De Minas Buenaventura (BVN), Hecla Mining (HL), and Alacer Gold (ASR). Together, these three stocks make up 5.5% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).