How Is the US Dollar Expected to Impact Gold Going Forward?



US dollar

Tracked by the Federal Reserve, the weekly US Dollar Index (UUP) measures the value of the dollar compared to its six significant trading partners—the euro, Japanese yen, British pound, Canadian dollar, Swiss franc, and Swedish krona. A rising value means that the dollar is stronger compared to other currencies and vice versa.

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Strengthening US dollar

The US dollar surged on Monday, November 7, after the FBI director, James Comey, cleared Hillary Clinton of criminal charges related to the handling of classified emails. This boosted Clinton’s poll numbers for the day, which was perceived to be less disruptive to the markets.

This bump in the polls also supported a rate hike in December, which is supportive of the US dollar. However, the outlook for the dollar is on a new track since Clinton lost the election to Republican Donald Trump late Tuesday night.

As we mentioned in the previous article, the US jobs data also came in stronger on November 4, 2016. This report also supported US dollar.

US dollar and gold

Dollar-denominated assets such as gold are influenced by the dollar’s strength. A strong US dollar is negative for gold and vice versa. The increasing strength in the US dollar is also putting pressure on gold prices.

As a result, it’s important to track the direction of the dollar. This can point you in the direction of gold prices (GLD) and gold stock prices like Iamgold (IAG), AngloGold Ashanti (AU), Gold Fields (GFI), and Agnico Eagle Mines (AEM). The US dollar also influences funds like the VanEck Vectors Gold Miners ETF (GDX). Together, these three companies contribute 11.9% toward GDX’s holdings.


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