Gold Price lower, and could drop further, as dollar strength persists

September 11, 2018

Singapore (Sept 11)  Gold prices inched lower on Tuesday, as the dollar rose on the expectation of a US interest rate increase later in September, and on concern that the China-US trade war could escalate.

Spot gold was down 0.2% at $1,193.07 an ounce at 2.58am GMT. US gold futures were mostly steady at $1,199.60 an ounce.

"With the greenback supported by expectations of higher US interest rates, this may translate to nothing but further pain for gold," said Lukman Otunuga, Research Analyst at FXTM. Spot prices could drop to $1,185-$1,160 levels in the short or medium term, Otunuga said.

Strong US payrolls data last week cemented expectations that the US Federal Reserve will raise interest rates in September, in what would be its third hike this year, with expectations of one rise more in December.

Higher rates increase bond yields, making nonyielding bullion less attractive, and tend to boost the dollar.

The dollar index, which measures the greenback against a basket of currencies, was up 0.1% at 95.236.

The dollar was also boosted after President Donald Trump said last week that he was ready to impose tariffs on virtually all Chinese imports to the US.

The rhetoric has made investors buy the dollar in the belief that the US has less to lose from a trade war — making dollar-priced gold more expensive for non-US buyers.

Gold prices have fallen 12.6% from a peak in April as the metal has lost its safe-haven appeal compared with the dollar, driving investors to raise their bearish bets on Comex gold and liquidate gold exchange traded funds.

"If a full-blown trade war (between the US and China) becomes reality and global growth ends up taking a hit, risk aversion may skyrocket ultimately sending investors back to gold," Otunuga said.

Gold prices have been trading within a $20 range for the past 10 sessions.

The metal is finding strong resistance at $1,200, with investors selling into any rallies that threaten to push it above that level, ANZ analysts said in a research note.

In other precious metals, spot silver was down 0.3% at $14.12 an ounce.

Platinum rose 0.4% to $785 an ounce. Palladium was down 0.1% at $975 an ounce, after hitting its highest in nearly 12 weeks at $991.15.


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