The US dollar posted a little weakness as risk aversion gripped investors, and the most recent fall of the US dollar against the basket of six major world currencies gave further support to dollar-denominated precious metals. The US dollar index, measured by the DXY Currency Index, is now closer to the 100 mark again. It ended the day at 100.4 on Tuesday, January 31, 2017.
The weaker the US dollar gets, the easier it gets for investors from other countries to invest in dollar-based assets like 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, and so their prices may suffer. Similarly, a fall in the dollar makes these assets more lucrative, and prices can rise.
Correlation between dollar and gold
The correlation between gold and the US Dollar Index is now -0.43, which means that about 43.0% of the time, gold and the dollar are moving 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 Global X Silver Miners (SIL) and the Sprott Gold Miners (SGDM). These two funds saw massive YTD (year-to-date) rises alongside precious metals, rising 5.1 % and 2.9%, respectively, YTD.
As precious metals retreated over the past few days, precious metal mining shares have also suffered. Sibanye Gold (SBGL), Eldorado Gold (EGO), Randgold Resources (GOLD), and Yamana Gold (AUY) have all seen gains in the past month due to the rise in precious metals.