US dollar recovered
The increasing strength of the US dollar is one of the major factors that played a role in the fall in precious metals over the past two days. The US dollar index, measured by the DXY Currency Index, rose almost 0.50% to meet the 100 mark again. It ended the day at 100.4 on Thursday, January 26, 2017. Earlier it had fallen to its seven-week low of 99.8. It seems that Trump’s lack of clarity regarding his proposed expansion plan caused the dollar to retreat, which was followed directly by a rise in precious metals.
Precious metals and the US dollar are inversely correlated. An increase in the dollar makes greenback-based assets expensive for buyers from other countries. So their prices may suffer. Similarly, a fall makes these assets more lucrative, and prices can rise.
Correlation between the US dollar and gold
The correlation between gold and the US Dollar Index 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 US Dollar Index is also close to -0.43.
Changes due to movements in the dollar can be seen in mining funds such as the iShares Silver Trust (SLV) and the iShares Gold Trust (IAU). These two funds saw massive year-to-date rises alongside precious metals. They rose 5.1% and 2.9%, respectively, on a year-to-date basis.
As precious metals retreated over the past few days, precious metal mining shares have also suffered. AngloGold Ashanti (AU), Coeur Mining (CDE), Randgold Resources (GOLD), and Yamana Gold (AUY) fell 2.2%, 3.1%, 1.6%, and 1.3%, respectively. These four miners together contribute about 14.0% to changes in the VanEck Vectors Gold Miners ETF (GDX).