US dollar surge
Although gold touched multi-month highs on Friday, April 7, it later lost tempo and fell. The US Dollar Index (DXY), which measures the dollar against the basket of six major world currencies, rose almost 0.5% on Friday, closing at 101.18.
The haven bids that caused an initial rise in gold could have also supported the dollar, while the meeting between US President Donald Trump and Chinese President Xi Jinping could have also added to the surge in the US dollar.
Gold and the dollar
The recent rise of the dollar caused weakness to the dollar-based assets like gold (GLD) and silver (SLV). As mentioned above, on April 7, gold lost the glory it saw at the start of the day and tumbled, while silver actually ended the day negative.
To be sure, much of the fluctuations in precious metals over the past few days has been driven by the US dollar (UUP). The rise of the dollar makes dollar-based assets more expensive for buyers from other countries, whereas, a fall in the dollar makes dollar-based assets cheaper. For this reason, the two are said to have an inverse relationship.
Notably, the mining shares that can react to fluctuations in the US dollar include Goldcorp (GG), New Gold (NGD), Sibanye Gold (SBGL), and Silver Wheaton (SLW). Combined, these four stocks make up about 10.5% of GDX.
In the next part, we’ll look specifically at gold mining shares.