Gold’s Price Driver Is 99% The US Dollar’ Right Now

August 31, 2018

New York (Sept 1)  With gold heading for its fifth consecutive monthly decline, analysts are looking at the U.S. dollar for direction, adding that the greenback has a solid hold over the precious metal’s prices.

Even though gold is slightly up on the day, with December Comex gold futures last trading at $1,206.30, up 0.11%, the yellow metal is still going to mark its longest monthly losing streak since 2013, down more than 2% over the last 30 days.

With the debate on whether bottoms are in for gold raging on, analysts remain hopeful that the yellow metal can see higher prices next week.

“I don’t think there is evidence that a bottom is in place, but we can rebound a bit further,” London Capital Group head of research Jasper Lawler told Kitco News on Friday. “There is scope for a bit more of a recovery. If we can close above $1,200, recovery is possible to $1,235.”

Lawler is among many analysts who see the U.S. dollar as the primary driver for gold prices in the near term. “The gold unfortunately at the moment is 99% the U.S. dollar,” he said.

Even though the U.S. dollar has come down a bit in the past couple of weeks, it could still appreciate and weigh on gold, warned Capital Economics analyst Simona Gambarini.

“We don’t expect the dollar to weaken much this year, which is why we don’t expect gold to move much from current levels,” Gambarini said.

The U.S. dollar index began to climb again on Friday, rising to 95.05 and putting additional downward pressure on gold.

“The dollar edged higher against a basket of major currencies during early trade, as US-China trade tensions boosted its safe-haven appeal. With the U.S. economy growing faster than initially estimated during the second quarter, market expectations remain elevated over a rate hike in September,” said FXTM research analyst Lukman Otunuga.

The Federal Reserve is also linked to the U.S. dollar outlook, Gambarini added. “We expect two more rate hikes this year, which should be negative for gold prices.”

Although the list of negatives for gold is extensive, Lawler pointed to a few positive factors, highlighting geopolitical ramblings in Italy and Turkey as well as adding that “the U.S. President Donald Trump is looking a bit politically unstable at the moment.”

Lawler also said that the stock market’s new highs could be good for gold, referring to the rally as a possible “false breakout.”

“It’s a good sign that even with stock market breaking out to new highs, gold is still holding onto the $1,200 level,” he said.


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