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The US Dollar Is Surging: What’s the Impact on Gold?

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Inverse movements

A crucial factor that continues to impact gold is the US dollar. On Monday, gold and the other three precious metals fell considerably. We saw the US dollar, depicted by the U.S. Dollar Index (or DXY), rise 0.70% on Monday. Last week was also choppy for precious metals. The dollar and precious metals move in opposite directions most of the time. On a YTD (year-to-date) basis, gold has risen 1.2%, while the dollar has fallen 1.3%.

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The US dollar, depicted by the DXY, prices the dollar against a basket of six major world currencies. The dollar and gold tend to be inversely related since precious metals are dollar-denominated assets. Any rise in the dollar indicates lower demand for dollar-based assets such as gold and silver. Similarly, a drop in the dollar is beneficial for precious metals.

The chart below shows the performance of gold (IAU) compared to the US dollar (UUP) in the past month.

Negative correlation

The inverse relationship between the dollar and precious metals in the last five trading days shows that gold has fallen 1.9%, while the dollar has increased 1.7%.

The correlation between gold and the dollar since the beginning of 2018 is -0.85. A correlation of -0.85 indicates that about 85% of the time, gold moved in the opposite direction of the dollar since the start of 2018.

The precious-metal-based funds that closely track miners and may thus be impacted by the US dollar (UUP) include the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the iShares MSCI Global Gold Miners (RING). They fell 2% and 0.93%, respectively, on Monday following the falls in precious metals.

Most mining stocks have also faced YTD losses. Agnico-Eagle Mines (AEM), Sibanye Gold (SBGL), Gold Fields (GFI), and Franco-Nevada (FNV) fell 1.3%, 5.4%, 2.2%, and 1.3%, respectively.

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