How Has the Dollar's Fall Affected Precious Metals?
The dollar falls
The US dollar, as represented by the US Dollar Index (DXY), has fallen 0.64% on a trailing-five-day basis. It has accumulated losses of approximately 4.7% since the beginning of 2016. DXY measures the dollar’s strength against a trade-weighted basket of six major currencies: the euro, the yen, the pound, the Canadian dollar, the Swedish krona, and the Swiss franc.
The cautious comments by Federal Reserve Chair Janet Yellen and other Fed members caused a plunge in the dollar. Most of the time, the fall of the dollar is beneficial for dollar-denominated assets. The relationship between gold and the dollar is depicted in the chart above. Over the long term, the relationship is expected to hold true, whereas short-term variations are common.
Gold, silver, and platinum have risen 18.9%, 16.4%, and 11.5%, respectively, on a YTD (year-to-date) basis.
The US dollar has been sinking since the minutes from the Federal Reserve’s last meeting came out last week. As gold is a safe-haven asset, it took advantage of the fall in the greenback and rose to a three-week high. Gold also benefited from weakness in the stock markets.
The rises and falls of the bullions are reflected in leveraged funds like the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the ProShares Ultra Silver ETF (AGQ). These two funds have risen a whopping 246.1% and 29.1%, respectively, on a YTD basis.
The miners that have also benefited from the fall of the dollar and the rise of gold include AngloGold Ashanti (AU), Newmont Mining (NEM), and Sibanye Gold (SBGL). These three companies rose 6.9%, 6.9%, and 8.4%, respectively, on Monday, April 11. Together, these three companies make up 12.2% of the Market Vectors Gold Miners ETF (GDX).
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