Do Gold and the US Dollar Want to Walk Hand-in-Hand?



Greenback-denominated assets

The recent Brexit fears took gold to its two-year high of $1,377.50 per ounce on Wednesday, July 6, 2016. Gold has seen a rise of approximately 7.5% on a 30-day trailing basis. The US dollar also rose during that period by 1.9%. Usually, the US dollar and precious metals follow opposite paths.

Since precious metals are dollar-denominated assets, the rise of the US dollar pushes investors away from the expensive currency. Thus, metals denominated in that currency tend to fall. On the other hand, a fall in the dollar makes these metals a cheaper investment. Buyers are attracted to them, and prices can rise.

However, during the past month, the US dollar and gold have been moving together, both rising.

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The US dollar index

The DXY, or US Dollar Index, depicts the US dollar in the above graph. DXY measures the US dollar against a basket of six major world currencies: the Swedish krona, the Canadian dollar, the sterling pound, the euro, the Japanese yen, and the Swiss franc. DXY was trading at 96.3 on Friday, July 8, 2016.

The rise in both the US dollar and precious metals is most likely due to the haven bids around the globe after the Brexit vote on June 23.

Funds and miners

The buoyancy of gold has helped mining funds and stocks. The VanEck Vectors Junior Gold Miners ETF (GDXJ) and the SPDR S&P Metals and Mining ETF (XME) rose 4.9% and 4.2%, respectively, on Friday, July 8.

Miners that are among the top performers on a five-day trailing basis include Primero Mining (PPP), Harmony Gold (HMY), and Alamos Gold (AGI). They rose 22.1%, 23.6%, and 19.9%, respectively. Together, they make up 2.4% of the VanEck Vectors Gold Miners ETF (GDX).


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