uploads///Gold and Dollar Fluctuations

How the Lower US Dollar Is Affecting Gold and Miners


Mar. 26 2018, Updated 3:55 p.m. ET

US dollar falls

On March 23, gold touched a two-week high and closed at $1,349.30 per ounce, and silver ended the day at $16.50 per ounce. The metals likely rose due to the US dollar falling. The US dollar, depicted by the DXY Currency Index (UUP), fell 0.42% on Friday and had fallen 0.83% in the last five days.

Precious metals are all dollar-based assets (GLD), meaning they often react to changes in the dollar. Whereas a drop in the dollar can boost demand for dollar-denominated assets, a higher dollar can be detrimental to demand for dollar-denominated assets. The DXY Index was at 89.6 on Friday, and the Japanese yen touched a 16-month high against the dollar, possibly as a result of trade war tensions.

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Correlation analysis

The above chart shows how gold and the dollar have moved in opposite directions in the last month. Their correlation has been pretty strong since the beginning of 2018, at -0.87, which indicates that gold and the dollar have diverged 87% of the time.

In other gold-related news, Russia has been hoarding gold. Russia’s gold reserve spiked to $455.2 billion between March 2 and 9, the highest level since September 2014. Russia now holds the world’s fifth-largest gold reserve.

Mining stocks that rose in the week after the FOMC (Federal Open Market Committee) meeting include First Majestic Silver (AG), New Gold (NGD), Gold Fields (GFI), and Agnico Eagle Mines (AEM). The stocks rose 7.1%, 10.9%, 9.9%, and 6.1%, respectively.


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