uploads///Gold and Dollar Fluctuations

The US Dollar Fell 0.71% on December 13 as Gold Rose 0.57%

By

Dec. 14 2017, Updated 3:55 p.m. ET

The dollar connection

Although interest rate hikes and speculation impact precious metals, this effect is typically temporary. However, the dollar has a significant impact on the movement of precious metals. If we look at the historical performance of gold versus the US dollar, there is a marked inverse relationship between the two.

The US dollar (UUP), which is depicted by the DXY Currency Index (or DXY), fell 0.71% on December 13—the day the Federal Reserve raised interest rates a quarter point to 1.25%–1.50%.

Precious metals like gold and silver are dollar-denominated assets that react negatively to the increase in the US dollar. When the dollar surges, international investors find the dollar to be more expensive. As a result, the demand for dollar-priced assets also becomes more expensive.

The inverse relationship between gold and the US dollar is depicted in the chart above.

Article continues below advertisement

Gold and silver

The US dollar and yields fell on December 13 after data showed sluggish growth in consumer prices. The weakness of the dollar gave a boost to gold (IAU) and silver (SLV), which rose 0.57% and 1.3%, respectively.

Gold ended at $1,246.90 per ounce, and silver closed at $15.80 per ounce on December 13. The rebound in the dollar could pressure precious metals in the coming days.

Tax cuts

Another major event that could impact precious metals is the Republican plan to enact tax cuts, which is intended to stimulate the economy. Historically, a robust economy is a negative factor for precious metals.

Mining shares Yamana Gold (AUY), Coeur Mining (CDE), IamGold (IAG), and Alacer Gold (ASR) rose 6.1%, 4.5%, 4.2%, and 1.5%, respectively, on December 13.

Advertisement

More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.