Gold Price Slides on Dollar’s Surge

San Francisco (May 19)  Gold prices fell Tuesday, their five-session rally brought down by a surge in the U.S. dollar.

Gold for June delivery, the most actively traded contract, was recently down 1% at $1,214.90 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices closed at a three-month high of $1,227.60 an ounce on Monday.

The dollar soared against its peers Tuesday after officials from the European Central Bank said the institution was ready to take further steps to boost inflation if current quantitative easing measures prove ineffective, a move that would weaken the euro. The dollar’s strength buffeted prices for gold, which is denominated in the U.S. currency and becomes more expensive for foreign buyers when the buck rises.

The Wall Street Journal Dollar Index, which gauges the dollar against a basket of 16 currencies, was recently up 0.9% at 85.52.

With the bulk of recent U.S. data showing a struggling economic recovery, however, some investors said the selloff in gold may not last.
“This is more of a bump in the road,” said George Gero, a senior vice president with RBC Capital Markets Global Futures.

Gold prices are set to move higher if the market grows convinced that the U.S. economy is bad enough to prevent the Federal Reserve from raising rates in September, the month most investors believe the central bank intends to push borrowing costs higher, Mr. Gero said. At the same time, the deluge of economic stimulus in Europe is likely to boost business activity and quicken inflation in the region, giving investors another reason to buy gold, he said. Some market participants use the metal as a hedge against rising prices.

Investors are keeping their eye on Wednesday’s release of the minutes from the Fed’s latest monetary policy meeting for indications on whether the latest data has swayed the central bank’s opinions on when to raise rates.

Source: WSJ