Dollar Keeps Rising: Will It Hamper Gold?



US dollar and gold

Lately, the US dollar hit its highest level since early 2003 compared to a basket of major world currencies. When Donald Trump won the election, he pointed towards tax cuts and fresh investment in infrastructure to boost the lagging US economy. It weighed on gold, which is priced in dollars. Gold fell to its lowest level since May 30.

The much-discussed relationship between gold and the US dollar has been quite active recently. In this part, the dollar is depicted by the US Dollar Index, which measures the dollar against a basket of six major world currencies.

As the above chart suggests, a fall in the dollar often increases gold’s price, while a rise in the dollar often curbs its demand. The inverse relationship is shown in the above chart.

The US Dollar Index rose to its highest level since April 2003. It was set for its biggest weekly gain in a year after Fed Chair Janet Yellen provided a strong signal that US interest rates would likely rise by the end of the year.

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Correlation between the US dollar and gold

The correlation between gold and the US Dollar Index is -0.36. It means that about 36% of the time, gold and the dollar move in opposite directions. Silver’s correlation with the US Dollar Index is -0.32.

Precious metals–based funds such as the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the iShares MSCI Global Gold Miners ETF (RING) often take much of the price movement from the precious metals. Mining companies also witnessed a fall in the prices due to falling metal prices. Mining companies like IamGold (IAG), Barrick Gold (ABX), Coeur Mining (CDE), and Goldcorp (GG) also take much of their changes from the changes in the US dollar.


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