How the US Dollar Is Affecting Gold



US dollar drops

Besides geopolitical news, another important factor that has contributed to the rise of gold is the fall of the US dollar. The US dollar (UUP), depicted by the US dollar index, or DXY, dropped 0.27% on April 17 after hitting close to a four-week high on April 10. The DXY had fallen 1.9% YTD (year-to-date). The dollar remained weak as North Korea’s nuclear test failed, which left investors waiting for the United States’ reaction.

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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% YTD. 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 relationship may vary, but in the long run, the relationship is expected to hold true.

The correlation between gold and the US dollar is -0.12%. A negative correlation suggests an inverse relationship, meaning that over the past year, about 12% of the time the dollar rose, gold fell. Miners that rose on Monday with the increase in precious metals include Aurico Gold (AUQ), Newmont Mining (NEM), Primero Mining (PPP), and Royal Gold (RGLD). The iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV) both dropped on Monday, by 0.40% and 0.57%, respectively.


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