Gold drops as risk aversion boosts dollar

Bengaluru — Gold dipped on Friday on a stronger dollar, while concerns over a second wave of coronavirus infections and a protracted economic recovery limited losses, keeping the metal on track for its first weekly rise in four weeks.

Spot gold was down 0.2% at $1,723.81/oz, at 3.35am GMT. Bullion has risen 2.3% so far this week. US gold futures fell 0.4% to $1,732.

“An increase in Covid-19 cases has led to rising risk aversion, leading to a stronger US dollar, which in turn, has lowered gold prices,” said National Australia Bank economist John Sharma.

The dollar index extended gains, making gold more expensive for holders of other currencies.

After a recent strong rally, US stocks fell more than 5% on Thursday, in their worst day since mid-March. Asian equities slumped on fears of resurgence in coronavirus cases.

Any rallies in gold today (Friday) will be limited as it looks like the downward correction in stocks still has some way to go, said Jeffrey Halley, a senior market analyst at Oanda.

However, the reassertion by the US Federal Reserve of its extremely dovish stance and the monetary policy globally should be supportive for gold, he added.

Earlier this week, Fed officials announced the need to keep the key interest rate near zero through at least 2022, and vowed to support the US economy’s “long road” to recovery.

Gold, which pays no interest, tends to benefit from lower interest rates as it reduces the opportunity cost of holding bullion.

Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.5% to 1,135.05 tonnes on Thursday.

Palladium rose 0.2% to $1,925.44/oz, while silver declined 1.3% to $17.48/oz. Platinum rose 0.7% to $816.59/oz, and was down about 2.3% for the week — on track for its largest weekly decline since early April.

Reuters