US dollar and gold soar
Most of the time, gold and the US dollar exhibit a strong negative correlation as gold and other precious metals are priced in the US dollar. Usually, the higher the dollar surges, the more expensive it gets for investors of other currencies to buy gold. As gold rose after the Brexit decision, the correlation between gold and the dollar was positive rather than negative. The US dollar also climbed due to the safe-haven bids. The comparative performance of the dollar against the pound remained high.
The US dollar index (or DXY) measures the dollar’s strength against a trade-weighted basket of six major currencies: the euro, yen, pound, Canadian dollar, Swedish krona, and the Swiss franc. The US dollar climbed about 2.5% during the past one month. The index was trading at 94.5 on Friday, June 24. DXY rose by 0.54% on Friday.
Safe-haven appeal helps
It was the safe-haven appeal that lifted up both gold as well as the US dollar on Friday. Over the longer run, gold and the dollar follow opposite paths. However, in the shorter run, the correlation may vary according to the global scenario.
The rise of the dollar was beneficial not only to gold but also to funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two funds have seen reasonable gains over the past one month. These two funds rose 1.6% and 1.8%, respectively, on a 30-day trailing basis.
The mining shares that have been the best performers over the past one month include Coeur Mining (CDE), B2Gold (BTG), and Gold Fields (GFI). These three companies rose 36.7%, 37.7%, and 32.6%, respectively, on a 30-day trailing basis. Combined, these three miners together make up 6% of the VanEck Vectors Gold Miners Fund (GDX).