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Did the Dollar Rebound Affect Precious Metals and Miners?

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Rebound in the dollar

Monday, January 29, 2018, was a down day for all four precious metals. Gold, silver, platinum, and palladium fell 0.73%, 1.5%, 0.35%, and 0.42%, respectively, as the dollar gained some ground. The US dollar index, which prices the dollar against a basket of six major world currencies, rose 0.27% that same day. However, it has fallen 3.1% over the past month, which has given some buoyancy to dollar-denominated metals.

The dollar has rebounded from its lows after United States Secretary of the Treasury Steven Mnuchin was eager to back a weaker currency. The dollar (UUP) and gold (GLD) have a close-knit relationship with each other. The chart below shows their inverse relationship during the last month.

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Dollar relationship

Since gold is a dollar-denominated asset, a surge in the dollar causes investors from other countries to stay away from dollar-based assets such as precious metals. Their demand is negatively impacted, and so are the prices.

The correlation between gold and the US dollar during the last year is -0.48. That indicates that about 48% of the time, gold moved in the opposite direction of the dollar for the past year.

Mining companies that also witnessed a fall on Monday were Iamgold (IAG), Alacer Gold (ASR), Hecla Mining (HL), and Coeur Mining (CDE). They fell 5.8%, 4.7%, 7.3%, and 4.7%, respectively.

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