During November, after the presidential election, gold’s gains were mainly due to the strong US dollar. The US Dollar Index rose to a 14-year high. The US Dollar Index measures the dollar against a basket of six major world currencies. As the Fed boosted the interest rate on Treasuries during the last month, the dollar rose significantly. The rising interest rate on the US Treasuries makes the US dollar more lucrative.
Movements in gold and the US dollar are shown in the following graph. As you can see, they mainly have an inverse relationship. The higher the dollar, the lower the demand for dollar-denominated assets. Optimism in the overall US economy could boost the dollar.
Correlation between the US dollar and gold
The correlation between gold and the US Dollar Index is -0.36. It means that about 36.0% of the time, gold and the dollar move in opposite directions. Silver’s correlation with the US Dollar Index is -0.32.
Changes due to the dollar’s movements can be seen in mining funds such as the Physical Swiss Gold Shares (SGOL) and the Physical Silver Shares (SIVR). These two funds saw massive year-to-date rises alongside precious metals, but they fell during the past month.
The rising dollar can also have a negative impact on mining stocks. Some of the mining stocks that fell recently due to falling precious metals include Royal Gold (RGLD), B2Gold (BTG), Pan American Silver (PAAS), and Yamana Gold (AUY).