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How the Dollar’s Movement Is Impacting Precious Metals

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Inverse movements

A crucial factor that continues to affect gold is the US dollar. On Wednesday, gold rose, but the other three precious metals followed a downward trend. The US dollar, depicted by the DXY Currency Index, was down 0.06% on Wednesday. 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 2.2%, while gold has increased 2.3%. The dollar was notably weaker in comparison to the yen on Wednesday.

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As gold and other precious metals are all dollar-denominated assets, the increase in the dollar means lower demand for dollar-based assets such as gold and silver. Similarly, a decline in the dollar is beneficial for precious metals. The below chart looks at the performance of gold versus the US dollar during the last one month.

ETFs and miners

The precious-metal-based funds that closely track the miners and may thus be impacted by the US dollar include the VanEck Vectors Gold Miners (GDX) and the Global X Silver Miners (SIL). These ETFs were down 5.9% and 6.1%, respectively, on a YTD basis.

Most mining stocks have also faced YTD losses owing to the mixed reaction of the miners and the frequent up and down movements. Barrick Gold (ABX), AngloGold Ashanti (AU), Alacer Gold (ASR), and IAMGOLD (IAG) have a YTD loss of 13.5%, 8.4%, 8.5%, and 12.9%, respectively.

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