How the Slump in the US Dollar Boosted Gold



Gold and DXY

Precious metals reversed some of their losses on Monday, July 17, 2017. Gold, silver, platinum, and palladium all rebounded with rises of 0.51%, 1%, 0.74%, and 1%, respectively. These four metals have also seen rising prices over the past five trading days. The rise in the metals was due to the decline in the US dollar. The US dollar index, which measures the dollar against a basket of six major world currencies, dropped 0.96% over the past five trading days.

The precious metals are all dollar-denominated assets, and they usually rise when the dollar falls. The lower dollar makes these metals less expensive for buyers in other countries. Thus, their demand may rise, which would lead to a price increase.

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The above figure shows how gold (GLD) (SLV) moves in relation to the US dollar, depicted here by the DXY Index over the past two years. Another crucial element that continues to play on precious metals is the US interest rate. In the next part of this series, we’ll focus on how the interest rate is playing on these metals.

Negative correlation

The correlation numbers between gold (GLD) and the US dollar (UUP) are not very high despite the much-spoken-of inverse relationship between the two.

The correlation between gold and the US dollar is -0.21% on a year-to-date basis. That suggests that about 21.0% of the time, an increase in the US dollar will lead to a fall in gold, and a drop in the US dollar will result in a rise in gold.

The mining shares are also known to follow the price fluctuations in the metals. Among the miners that rose on Monday due to the increase in gold and other metals include Coeur Mining (CDE), Barrick Gold (ABX), Kinross Gold (KGC), and Eldorado Gold (EGO). These four miners rose 3.8%, 0.56%, 2.3%, and 1.7%, respectively.


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