One important element that is closely associated with precious metal price fluctuations is the US dollar. On April 28, 2017, the US dollar index, as tracked by the DXY Currency Index (or DXY), fell 0.93% on a five-day trailing basis.
Any rise or fall in the US dollar plays substantially on precious metals, which are dollar-denominated assets. The higher the US dollar rises, the more expensive it is for investors from other countries to buy dollar-based assets like gold and silver.
However, the relationship between gold and the dollar (UUP) may not always persist, and they could move in the same direction instead. Rising global tensions could increase the haven status of gold as well as the dollar. Similarly, a fall in haven demand could draw them lower.
Correlation of gold and the dollar
As gold is a dollar-denominated asset, the higher the dollar surges, the lower the demand for dollar-based assets like gold and silver can fall. Similarly, a fall in the dollar increases the demand for dollar-based assets The DXY Index, which prices the dollar against a basket of six major world currencies, has fallen about 3.1% on a year-to-date basis.
The correlation between gold and the US dollar is -0.12%. A negative correlation suggests an inverse relationship. Over the past year, about 12% of the time, gold fell when the dollar rose.
Mining companies that saw a revival on April 28 due to the rebound in gold include Cia De Minas Buenaventura (BVN), Hecla Mining (HL), Barrick Gold (ABX), and Franco-Nevada (FNV). These companies rose 3.5%, 2.3%, 0.06%, and 1.6%, respectively.