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The Most Crucial Determinant of Gold Prices

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Dollar strengthens

Another crucial factor behind precious metals’ rise was the US dollar index, which fell 0.42% on May 10. The DXY had gained over the last month, rising 3.4%, while gold fell 1.6%. Over the past few months, the US dollar (UUP) has been the most critical driver of gold prices.

The above chart shows the inverse relationship between the dollar and gold. Any rise in the dollar indicates lower demand for dollar-based assets such as gold and silver, and a drop in the dollar is usually beneficial for precious metals.

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Negative correlation

Year-to-date, the correlation between gold and the dollar has been -0.81, which indicates that ~81% of the time, gold and the dollar moved in opposite directions. Precious-metal-based funds that closely track miners and may be affected by the US dollar (UUP) include the iShares Gold Trust ETF (IAU) and the ETFS Physical Silver Shares ETF (SIVR). The funds have risen 0.64% and 1.8%, respectively, in the last five days.

Most mining companies followed gold last week. Pan American Silver (PAAS), Hecla Mining (HL), IAMGOLD (IAG), and Wheaton Precious Metals (SLW) have risen 9.1%, 2.3%, 10.5%, and 2.5% in the last five days.

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