US dollar’s ups and downs
As we saw in the previous part of this series, the US dollar and precious metals were both impacted by GDP numbers that came out on Friday, January 27, 2017. The US dollar often negatively reacts to any pessimism in US markets.
The reason behind the fall of the dollar on Friday was lower-than-expected GDP numbers. However, the U.S. Dollar Index (or DXY), which measures the dollar against a basket of six major world currencies, ended the day 0.10% higher than the previous day.
You can see the movements in gold and the US dollar in the graph below, which indicates 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 DXY is -0.43, which means that about 43.0% of the time, gold and the dollar move in opposite directions. Silver’s correlation with the DXY is also -0.43.
Changes due to movements in the dollar can be seen in funds such as the ETFS Physical Swiss Gold (SGOL) and the ETFS Physical Silver (SIVR). These two funds saw losses during the past one week. They fell 1.9% and 2.0%, respectively on a five-day trailing basis.