Did the Fall in the Dollar Boost Precious Metals?

Precious metals saw an upward swing on Tuesday, November 1, 2016. The rise in precious metals was most likely due to the slight fall of the DXY Currency Index. The DXY Index measures the dollar against a basket of six major world currencies including the euro, the Japanese yen, the pound, the Swiss franc, the Swedish krona, and the Canadian dollar. The DXY index closed at 98.3.

On a five-day trailing basis, the index has seen a loss of about 0.96%. Gold, silver, platinum, and palladium have risen 2.2%, 4.8%, 2.9%, and 1.4%, respectively.

The precious metals and the US dollar have a close inverse relationship with each other. The rise of the dollar often sends these metals falling, and vice versa. Investors from other countries find the dollar-denominated assets cheaper when the dollar is lower.

The above chart shows the inverse relationship between gold and the US dollar. The rise in the metals also extended to the gold and silver funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two funds have risen 1% and 3.3%, respectively. The mining companies like First Majestic Silver (AG), New Gold (NGD), Newmont Mining (NEM), and Agnico Eagle Mines (AEM) rose due to the precious metal rebound.

The correlation between gold and the DXY is -0.36, meaning that about 36% of the time, gold and the dollar move in the opposite direction. Silver’s correlation with the DXY is -0.32.