Recovering dollar puts pressure on gold price

May 7, 2018

London (May 7)  Gold fell on Monday, snapping three days of gains as the dollar index rose back towards its 2018 peak, with the previous session’s soft US jobs data doing little to dampen optimism over the world’s largest economy. That left traders betting that the Federal Reserve would press ahead with lifting US interest rates this year, potentially cooling interest in gold because it increases the opportunity cost of holding non-yielding assets such as bullion.

Spot gold was down 0.1% at $1,313.03/oz by 9.30am GMT, having touched its highest since April 30 at $1,318.85. US gold futures for June delivery eased by 0.1% to $1,314. The market was thinned by a national holiday in the UK, which closed trading desks in London. The dollar index rose back towards Friday’s peak for the year on Monday after US jobs and wages data did little to alter perceptions of strength in the US economy and consequently expectations for more Fed rate increases.

Meanwhile, a surprise drop in German industrial orders served as a reminder that softer economic data could encourage the European Central Bank (ECB) to delay the unwinding of its extraordinary stimulus measures.

Commerzbank analyst Carsten Fritsch said that gold was still primarily driven by the dollar and the widening interest rate differential between the US and Europe. "This all boosts the US dollar and weighs on gold," he said.

Investors were therefore tempering bets on higher gold prices, he said. "Spec net longs are at the lowest since July 2017. [There has been a] massive reduction in the last few trading weeks, so most speculative investors have thrown in the towel already."

Speculators cut their net long positions in Comex gold by 62,378 contracts to 51,985 contracts in the week to May 1, data from the US Commodity Futures Trading Commission (CFTC) showed on Friday.

Holdings of the world’s largest gold-backed exchange-traded fund, New York-based SPDR Gold Shares, fell 0.17% to 864.13 tonnes on Friday.

Spot silver was down 0.2% at $16.46/oz.

Palladium gained 1.1% to $978 and platinum was 0.9% higher at $914.50/oz, having earlier hit its highest since April 25 at $918.70.

Friday’s positioning data from the CFTC suggested the metal might be due a bounce, analysts said.

"On platinum, money managers increased their short position by 8,813 contracts taking concentration of speculative short open interest [money manager short position as a percentage of total open interest] to 41.9%, the highest level since July 2017," Société Générale said in a note.

"With prices near the bottom of the recent one-year range, platinum is now in the oversold box."


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