Gold price on the verge of first tumble into correction territory in nearly 2 years

July 18, 2018

London (July 18)  Gold prices on Wednesday were on track for a fourth straight decline, matching their longest such streak in 2018 and putting the yellow metal on the verge of finishing in correction territory for the first time since the end of 2016.

August gold GCQ8, -0.32%  was down $4.20, or 0.3%, at $1,223.10 an ounce, putting the commodity on track to shed 1.5% this week. Moreover, the precious commodity has thus far tumbled 10.3% since its peak on Jan. 15 at $1,362.90 an ounce. If the session’s decline holds, that puts gold firmly in correction territory, usually characterized as a fall from a recent peak of at least 10% (see chart below):

A finish in correction territory would be the metal’s first such tumble since the end of 2016, according to WSJ Market Data Group.

The bulk of those losses for gold have come as the U.S. dollar has enjoyed a strengthening trend that has decidedly weighed on commodities priced in the currency. As measured by the ICE U.S. Dollar Index DXY, +0.37% which gauges a half-dozen currencies against the buck, the dollar has gained 3.4% so far this year. Gold has a year-to-date loss of 6.6%. 

The ICE U.S. Dollar index has powered higher this year as gold has weakened

Gold’s early downdraft hasn’t occurred without perplexing bulls, with the asset ignoring concerns tied to trade wars that should have provided some support for the asset widely viewed as source of safety and a store of value in times of geopolitical distress. However, many observers have pegged the recent slump to the strength of the buck.

Comments from Federal Reserve Chairman Jerome Powell during Tuesday testimony in front of a Senate Banking Committee implies that gold may be in for a further decline. Powell points to a steady rate-hike path for the U.S. central bank, the Fed’s projections point to a further two rate increases in 2018, that could propel greenback further and lift the rates of benchmark fixed-income assets like the 10-year Treasury note TMUBMUSD10Y, -0.45% most recently yielding at 2.86%.

Richer rates for so-called risk-free assets like Treasurys can make gold, which doesn’t offer a yield, less attractive comparatively, exacerbating its downward momentum underpinned by a beefier buck.


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