GOLD PRICES traded in a narrow range between $1255 and $1248 per ounce Monday morning in London, largely unchanged from last week’s close of $1252 and close to the 3-week low of $1244 which it touched last week, writes Steffen Grosshauser at BullionVault.
The U.S. dollar index remained above 95 against a basket of other major currencies since it reached a 7-week high following the release of the Fed’s April meeting minutes last Wednesday.
Markets were affected by the growing expectations of an early rate hike following New York Federal Reserve President William Dudley’s hawkish remark last week that the U.S. economy could be strong enough for another rate hike in June or July. Market participants currently see the probability of a June rate hike at 26%, according to CME Group FedWatch.
“We see gold continuing to work lower over the course of the coming week, as an upward trending dollar should continue to weigh in on prices,” said INTL FCStone analyst Edward Meir after the dollar saw its third straight week of gains.
“Leading into June, gold will be at the mercy of US dollar flows and market positioning, with key support levels for the metal [at] $1243 and below this, $1205,” added Swiss refining and finance group MKS.
However, “a premature hike by the Federal Reserve may lead to a slide in inflation, a pullback in growth and greater volatility, causing investors to shun risky assets,” points out Gary Dugan, chief investment officer for wealth management at Emirates NBD. A loss of trust in the greenback may lead to a bigger demand among investors in alternative assets like gold, which Dugan sees at $1400 an ounce in the near term and around $1800 by the end of next year.
Even if there will be two more rate rises this year, this must not necessarily stop gold to continue its rally, reckons Julian Jessop, chief international economist at Capital Economics.
“The conventional wisdom, of course, is that Fed tightening is bad for gold, mainly because higher US rates can strengthen the dollar and increase the opportunity cost of holding commodities,” he explains.
“However, there is surely more to say than this; after all, gold and silver prices actually rallied in the weeks and months after the Fed first raised rates last December.” Especially the persistent weakness in the dollar and renewed interest in inflation hedges are considered the main reasons for the metal’s strength by the commodities expert.
Billionaire hedge fund manager George Soros revealed last week that he recently made an investment of nearly $390 million in total in shares of Canadian miner Barrick Gold and the already giant gold-backed ETF SPDR Gold Trust, while significantly cutting down his existing stock portfolio.
Total holdings in the SPDR Gold Trust (NYSE Arca: GLD) increased 1% to 869 tonnes on Friday, the highest level since November 2013.
Silver, in the meantime, dropped 1% to $16.37 per ounce. Other precious metals also edged lower with platinum down 0.4% and palladium down 0.9%.
European stocks fell from a three-week high as Brent crude oil slips 1% to around $48 a barrel, indicating that after the recent rally towards $50 the demand may already be fading again.