How the Depreciating US Dollar Helped Gold on April 11



US dollar dips

The US dollar, depicted by the US dollar index (DXY), dropped 0.31% on Tuesday, April 11, after hitting a nearly four-week high on April 10. The fall in the dollar was mainly due to the yen’s increased haven status. Gold and the yen both rallied to their highest levels in five months.

The tensions due to North Korea warning of a nuclear strike tactically played on the yen, strengthening it against its G-10 peers. As the DXY index prices the dollar against a basket of six major world currencies—including the yen—the corresponding fall in the dollar seemed inevitable.

Also, the drop in Treasury yields contributed to the decline of the US dollar (UUP). The DXY index ended the day at 100.7 on April 10.

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Gold versus the dollar

Changes in gold and other precious metals have been widely dependent on the US dollar in 2017. The US dollar has fallen 1.5% year-to-date. Weakness in the US dollar often gives some breathing room to dollar-denominated assets.

As gold is a dollar-based asset, it becomes cheaper when the dollar depreciates. In the short term, the inverse relationship may vary but in the long run, the relationship is expected to hold true.

Gold’s buoyancy on April 11 also helped mining funds and stocks. The VanEck Vectors Junior Gold Miners ETF (GDXJ) and the Global X Silver Miners ETF (SIL) rose 2.0% and 3.1%, respectively, on April 11.

The miners that are among the top performers on April 11 included Coeur Mining (CDE), Harmony Gold (HMY), New Gold (NGD), and First Majestic Silver (AG). Together, these miners make up 4.4% of the VanEck Vectors Gold Miners ETF (GDX).


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