Gold Stumbles Under the Pressure of a Strong Dollar and Brooding Rate Hikes

As a commodity, gold fell to a nine-month low, earlier this week. This adds to existing pressure from the presently-strong dollar, as well as a pending rate hike.  Investors now await for the latest economic data to see how it might relax or further restrict monetary policy.

Specifically, spot gold fell by nearly one-half percent, to $1,725.33.  In addition, US gold futures fell by about the same amount, to $1,723.8.

Wells Fargo head of real asset strategy John LaForge explains, “The US dollar has risen 12 percent since the start of the year. Almost half of that gain has come in the last month. Such big moves are quite rare, but when they do happen, commodity prices typically suffer. The reason is that most commodities are priced in US dollars.”

The dollar index had been hovering around a 20-year peak to reinforce its global consensus as a safe-haven currency, especially during a time of higher recession risks. Of course, this is making gold more expensive for those looking to buy other global currencies.  Basically, rate increases tamper gold’s overall appeal by making them riskier as an asset that does not yield interest.

Analysts are now waiting for a series of coming US data to assess the potential breadth of additional inflation woes.  This data will include metrics like retail sales, factory output, and consumer prices. Hopefully, we will have a resolution when the Federal Reserve Bank convenes for their policy meeting, next week.

LaForge adds, “This loss of buying power can often negatively influence commodity demand and commodity prices. Considering the strength in the US dollar over the past month, it is not surprising that most commodity prices have been falling, gold especially.”