Why the Dollar Is a Strong Determinant of Gold Changes



Factors playing gold

Precious metals have been played by a few important factors over the past few days. Some of these factors are Korean tensions, the Federal Reserve’s policies, the equity markets, and the US dollar.

Sometimes, gold indicators are more active while others look passive. During the past week, the dollar was in play for changes in precious metals. The US dollar (UUP), depicted by the DXY (US Dollar Index), has fallen 0.47% on a five-day trailing basis. During the same time period, gold, silver, platinum, and palladium rose 0.95%, 3.1%, 2.3%, and 4.3%, respectively.

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Dollar influence

The inverse relationship between precious metals and the dollar is evident since these metals are dollar-based assets. It’s often seen that the demand for greenback assets falls as the greenback rises. Similarly, a fall in the dollar boosts the demand for these dollar-denominated assets.

The above chart shows us how gold and the dollar have moved over the past month. Observing the price trends, a negative correlation between the two seems obvious.

The dollar obviously has an impact on precious metals, but it also moves famous gold and silver funds such as the iShares Silver Trust (SLV) and the iShares Gold Trust (IAU). These funds have a five-day gain of 3.6% and 1.5%, respectively.

Miners with a five-day gain are Alamos Gold (AGI), First Majestic Silver (AG), Goldcorp (GG), and New Gold (NGD).


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