Gold Slides as the Greenback Climbs
The shine is coming off the yellow metal as the U.S. dollar rallies.
Earlier this week, I wrote about the mechanics and merits of hedging the foreign-currency exposure in an international-equity portfolio, a feat made increasingly straightforward in the wake of the recent proliferation of currency-hedged exchange-traded funds. These funds might take the sting out of a sliding yen or stumbling euro, which have been losing ground to the U.S. dollar of late. As the dollar has risen, one of the world's oldest currencies has also been suffering. The price of gold has slipped some 3% over the past year, while the ICE U.S. Dollar Spot Index has risen by more than 17%. (See chart below.)
Gold is denominated in dollars, so as the greenback climbs, it will inevitably create downward pressure on prices. Also, inflation fears have subsided as consumer price indexes in many major markets have been declining and in some cases are in negative territory, further diminishing gold's luster. However, despite all this, January marked the largest monthly inflows into gold-backed exchange-traded products in over three years, led by the largest of them all, SPDR Gold Shares (GLD).
Ben Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.