Gold Price Dips as Dollar Strengthens

July 20, 2016

London (July 20)  Gold prices dipped slightly as the dollar strengthened and investors’ appetite for safe-haven assets faded. Spot gold was down 0.49% at $1,325.92 a troy ounce in midmorning trade on Wednesday.

The WSJ Dollar Index, which measures the dollar against a basket of other currencies, was up 0.07% Wednesday morning. A stronger greenback makes dollar-denominated commodities, like gold, more expensive for investors who hold other currencies.

“Unless there’s something unexpected, [gold] should trade more or less sideways in the short term,” said  Carsten Menke, a commodities research analyst at Julius Baer.

On the horizon is the European Central Bank’s meeting on Thursday. The bank isn't expected to announce any policy changes but if it were to announce further monetary easing measures, it would have a negative impact on the euro, further bolstering the dollar and drawing investors out of the gold market, Mr. Menke said.

The price of gold has largely steadied this week, battling expectations that the dollar would continue to climb, analysts said.

Momentum for gold, precipitated by political uncertainty in the U.K. after its vote to leave the EU, has stagnated, Mr. Menke said. He said he doesn't expect further news to create the kind of economic stress that might send gold prices soaring again.

A healthy-looking U.S. housing report released Tuesday raised the probability that the U.S. Federal Reserve will raise interests rates before the end of the year,  Commerzbank  said in a note to clients. As gold doesn't bear interest, it struggles to compete with other instruments, like Treasurys, when interest rates rise.

The bank noted the probability of a rate increase before the end of 2016 is now 43%, with a 70% probability of a rate rise by the end of 2017.

Source: WSJ

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