How Is the Dollar Affecting Precious Metals?

Besides ongoing geopolitical concerns, a crucial factor that gold keeps looking to for directional moves is the US dollar. The US dollar, depicted by the DXY Currency Index, was down 0.30% on Monday, April 9. The DXY Index prices the dollar against a basket of six major world currencies. The US dollar and gold tend to be inversely related to each other. On a YTD basis, the dollar (UUP) has fallen 2.5%, while gold has increased 2.3%.

The below chart shows the relationship between gold (IAU) (SLV) and the US dollar over the past one month. We can see that the relationship between the two has been pretty inverse. If we look at their correlation reading on a YTD basis, we see that they have a negative correlation of 0.87. A negative correlation of 0.87 indicates that since the start of 2018, gold has moved in the opposite direction to dollar about 87% of the time.

As gold and other precious metals are all dollar-denominated assets, a rise in the dollar means lower demand for dollar-based assets such as gold and silver. Similarly, a drop in the dollar is beneficial for precious metals.

North Korea has for the first time told the United States that it is prepared to discuss the denuclearization of the Korean Peninsula when their leaders meet next. This move suggests stability for world markets and thus a lowered demand for haven assets like gold and silver.

Among the mining companies that moved along with the rise in gold and the other three precious metals are Agnico-Eagle Mines (AEM), Aurico Gold (AUQ), Yamana Gold (AUY), and Pan American Silver (PAAS). They were up 1.3%, 3.6%, 1.8%, and 0.57%, respectively.