uploads///Gold price versus DXY Currency

How Gold Lost Its US Dollar Wings


Jul. 22 2016, Published 9:45 a.m. ET

US dollar index rises

The US dollar got stronger on Wednesday, July 20, 2016, in early Asian trading. Positive US data and rising expectations that the Bank of Japan will muster additional easing steps sent the dollar index to four-month highs.

The US dollar is predicted by the US Dollar Index. It measures the dollar’s strength against a trade-weighted basket of six major currencies. These include the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.

The US dollar has risen considerably over the past month. Crucial elements that have impacted the dollar include growing confidence in the US economy, recent upbeat economic numbers, and a possible rate hike by the Federal Reserve.

Gold price versus DXY Currency 2016-07-11

Gold-dollar relationship

There’s a strong link between gold and the US dollar since precious metals are priced in dollars. Weakness in the US dollar often gives some breathing room to dollar-denominated assets. Investors from other countries buy a cheaper dollar in exchange for their own currency in order to buy precious metals. Similarly, the strength of the US dollar leads to a weakness for precious metals.

The global risk appetite, which has recovered rapidly from the Brexit shock, has also considerable helped the US dollar. The US Dollar Index was trading at 97.2 on Wednesday. It has risen about 3.4% over the past 30 days.

Miners that rallied

The returns of precious metals have also helped mining funds and stocks. The iShares MSCI Global Gold Miners (RING) and the iShares Gold Trust (IAU) have risen 12.2% and 5.4%, respectively, on a 30-day trailing basis.

Miners that rose considerably include Newmont Mining (NEM), New Gold (NGD), and Royal Gold (RGLD). Their stocks rose 13.4%%, 6.8%, and 18.6%, respectively, during the same time frame. Together, these miners make up 12.1% of the VanEck Vectors Gold Miners ETF (GDX).

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