A surging U.S. dollar pressures gold to a nearly 6-month low
NEW YORK (September 27) A soaring U.S. dollar is taking a toll on gold, with the yellow metal slumping to a nearly six-month low to trade below the $1,900 an ounce on Wednesday.
December gold GC00, -1.32% GCZ23, -1.32%, the most actively traded contract, was down $20.20, or 1.1%, at $1,899.60 an ounce on Comex, slipping below the $1,900 level for the first time since March 15, according to FactSet.
Gold has dropped 3.4% in September, failing to find support from its traditional role as haven for investors despite a continued selloff in stocks that has the S&P 500 index SPX on track for a drop of more than 5% this month.
Blame a strong U.S. dollar and rising global bond yields, said Fawad Razaqzada, market analyst at City Index and Forex.com, in a note. A stronger greenback is often seen as a headwind to commodities priced in dollars, making them more expensive to users of other currencies. Higher bond yields, meanwhile, raise the opportunity cost of holding nonyielding assets.
The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six others, rose 0.3% Wednesday to 106.55, after trading at its highest since Nov. 30.
“After rising for 10 consecutive weeks, the dollar index is on course to add one more weekly gain on top of that this week. There’s no fresh news behind its latest gains. Yet there has also been no macro reason for the dollar rally to end, apart from the fact it is getting a bit overstretched in the short-term outlook,” Razaqzada said.
It isn’t a surprise that gold has fallen below the $1,900-an-ounce threshold, said Rupert Rowling, market analyst at Kinesis Money. It’s more remarkable that gold held up as long as it did, he argued in a Wednesday note.
“It will be interesting to note gold’s reaction over the coming days as from a purely macroeconomic perspective the price still looks overly high,” he wrote. “The main element that has kept gold supported in recent months has been the strength of institutional buying, particularly from central banks seeking to diversify away from the dollar.”
That support is unlikely to “suddenly disappear,” which points to a “slow and gradual” decline for gold rather than a sudden collapse, he said. And the yellow metal’s haven appeal may yet be revived in the near term as jitters grow over property turmoil in China and the health of the world’s second-largest economy.
MarketWatch
