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How Fall of the Dollar Is Impacting Precious Metals and Miners

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Dollar index fell

One of the market indicators for gold that has been consistently playing a significant role in the determination of the directional move for precious metals is the US dollar, depicted by the Dollar Index (or DXY). It prices the dollar against a basket of six major world currencies. The dollar has fallen 2.9% since the beginning of 2018. During that time, gold has risen 3.3%. The other three precious metals have fallen.

On Monday, April 16, 2018, gold fell 0.42%. However, it was at its two-month high against the Japanese yen. The unrest in Syria could have led to the fall.

Inverse relationship

The above chart shows the inverse relationship between the dollar and VXY over the past month. The relationship between precious metals (IAU) (SLV) and the US dollar (UUP) remains negative. If we read their correlations over the past year, we see that it’s -0.60. A correlation of -0.60 indicates that about 60% of the time, gold moved in the opposite direction of the dollar during the last year.

Hedge funds and money managers raised their net long positions in gold contracts as of April 10, 2018. The physical demand for gold has been rising in Asian countries, especially India, due to the upcoming key festival for gold buying.

Among the mining stocks that rose and followed the same path as gold on Monday were AuRico Gold (AUQ), Royal Gold (RGLD), B2Gold (BTG), and Gold Fields (GFI). They rose 3.6%, 0.75%, 0.35%, and 0.26%, respectively.

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