DXY and gold move in opposite directions
The fall in the price of gold on Monday, December 5, 2016, was partly determined by changes in the US dollar. The US dollar had been rising on expectations that the US Federal Reserve would raise interest rates at its next policymaking meeting.
The US Dollar Index (or DXY), which measures the greenback against a basket of six major world currencies, fell 0.64% on Monday, November 28, 2016. The yield on ten-year U.S. Treasuries fell from a 16-month high of 2.4% at the end of November.
The DXY rose 3.2% on a 30-day trailing basis, while gold fell during the same time frame. Gold and silver have fallen 10.5% and 9.1%, respectively, during the same period.
Fluctuations in the dollar are a major determinant of changes in the prices of precious metals. Changes in gold and the US dollar are shown in the above graph. As you can see, they mostly have an inverse relationship. The higher the dollar, the lower the demand for dollar-denominated assets.
Correlation between the US dollar and gold
The correlation between gold and the DXY is -0.36, which means that about 36.0% of the time, gold and the dollar move in opposite directions. Silver’s correlation with the DXY is -0.32.
These changes, based on the dollar, can also be seen in mining funds such as the iShares Gold Trust (IAU) and the Global X Silver Miners ETF (SIL). These two funds have seen massive year-to-date rises alongside precious metals, but they fell during the past month.