How the US Dollar Affected Gold

The US dollar has been on a downward swing over the past week.

Meera Shawn - Author

Aug. 1 2017, Updated 9:12 a.m. ET

uploads///Gold and Dollar Fluctuations

Dollar slump

The US dollar has been on a downward swing over the past week. The US dollar has a close-knit relationship to gold and the other three precious metals. The DXY Currency Index, which measures the dollar against a basket of six major world currencies, closed at almost 93.8. The DXY Index has fallen about 2.6% on a 30-day trailing basis. Many analysts are expecting that the dollar index could drop further to the 92 mark.
Precious metals are dollar-based assets. They gain strength when the dollar drops. The lower dollar (UUP) means dollar-denominated assets are cheaper for investors that use other currencies. The below chart shows the inverse relationship between the two.

Other currencies are strong

The dollar has fallen nearly 9% against a basket of foreign currencies on a year-to-date basis, which is mainly due to the uncertainty surrounding whether President Donald Trump’s economic agenda will get underway. The fall is also a result of the reduced chance the Fed will hike interest rates again this year.

The dollar index was trading close to its 13-month low on Wednesday, July 26. The euro has been strong and has been at its 23-month high over the past week. The Canadian dollar has also risen to almost a two-year high against the US dollar.

The mining-based funds like the VanEck Vectors Junior Gold Miners (GDXJ) and the Sprott Gold Miners (SGDM) rose about 4.4% and 7.1%, respectively, on a year-to-date basis. Miners like Agnico-Eagle Mines (AEM), Silver Wheaton (SLW), Franco-Nevada (FNV), and  Barrick Gold (ABX) have also seen year-to-date gains.
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