uploads/2018/03/Gold-and-Dollar-Fluctuations-2018-03-20-1.jpg

How US Dollar and Equities Are Affecting Gold

By

Updated

Falling equities and dollar

Besides interest rate hikes, some other crucial factors affecting gold are the fluctuations in the US dollar and equity movements. The fall of equities across the globe could have also boosted precious metals. The unrest in the markets (VIXY) could provide a push for gold prices, as gold and silver are famously known as havens that rise during uncertainty. US equities (QQQ) slumped on Monday, which could have led gold to rise.

Article continues below advertisement

High correlation

The decline in the US dollar could have also led to the revival of gold, silver, and platinum. As these are all dollar-denominated assets, they often react positively to any negative news about the US dollar. The higher the dollar, the more expensive it gets for buyers from other countries to buy gold. Plus, a lower dollar boosts the demand for gold and other precious metals.

The above chart depicts the inverse relationship between gold and the US dollar over the last one month. The correlation between the two has been strong. The YTD correlation of gold and the US dollar (UUP) has been as high as -0.90. This correlation indicates that about 90% of the time, a rise in the dollar leads to a fall in gold and vice versa.

The mining companies that have fallen during the last one month include AngloGold Ashanti (AU), Hecla Mining (HL), Kinross Gold (KGC), and Iamgold (IAG). These stocks have fallen 13.5%, 16.3%, 7.1%, and 14.8%, respectively, on a 30-day trailing basis.

Advertisement

More From Market Realist