Gold and the dollar
Just as we saw in 2017, precious metals closely follow the fluctuations in the US dollar. Precious metals are dollar-denominated assets, which means that they are priced in the dollar. So, an investor who wishes to buy gold should first buy the dollar.
A scaling dollar doesn’t attract investors, so the demand for the dollar and gold could diminish. Similarly, a falling dollar attracts more investors to the dollar as well as dollar-based assets.
The US dollar rose 0.32% on Wednesday, January 3, which led to the lower price of spot gold and silver. The US dollar (UUP), depicted by the DXY Index (DXY), has fallen 0.78% during the past month, and gold has risen 2.9%.
The late December retreat of the US dollar has been driving the price of gold higher. The US dollar had been weaker against the euro over the past few weeks. The changes in the relationship of the euro with the dollar could also impact gold prices.
Among the funds that closely track the price changes in gold are the VanEck Merk Gold Trust ETF (OUNZ) and the PowerShares DB Gold ETF (DGL). These funds have increased 2.4% and 2.3%, respectively, on a five-day trailing basis. The changes in gold can also be elemental in price changes of these funds.
Reaction of miners
Among the mining shares that declined on January 3, 2018, are Gold Fields (GFI), Agnico-Eagle Mines (AEM), Randgold Resources (GOLD), and Wheaton Precious Metals (SLW). These miners fell 0.68%, 0.58%, 1.9%, and 0.67%, respectively, on the day. The dollar’s rebound could be a reason behind their falling prices.