Stronger dollar takes the shine off gold

Bengaluru — Gold prices fell more than 1% on Thursday as the dollar climbed after the US Federal Reserve painted a favourable economic recovery picture but stopped short of offering concrete signals on further stimulus.

Spot gold was down 1.1% to $1,938.12/oz by 3.21am GMT. US gold futures slipped 1% to $1,951.30. “Investors across the Asia-Pacific are perhaps not inspired by last night’s FOMC (Federal Open Market Committee) meeting, in which the central bank seems to be reluctant to add stimulus in view of improving fundamentals,” said Margaret Yang, a strategist with DailyFx, which covers currency, commodity and index trading. “This led to a stronger US dollar, and a weaker gold price,” she added.

The Fed signalled on Wednesday it expected the US economic recovery from the coronavirus crisis to accelerate, with unemployment falling faster than the central bank’s forecast in June.

After the Fed’s comments, the dollar index rose to a more than one-week high against its rivals, making gold more expensive for holders of other currencies. Offering some respite to gold, the US central bank pledged to keep rates pinned near zero levels until inflation was on track to “moderately exceed” its 2% inflation target “for some time”. Lower interest rates decrease the opportunity cost of holding non-yielding bullion. Gold is also used as a hedge against inflation.

Meanwhile, data showed US consumer spending slowed in August, pointing to a stall in economic recovery from the pandemic-induced slump. “Lower for longer interest rates, continued quantitative easing by central banks and the US fiscal position potentially debasing the dollar continue to be long-term supportive factors for a higher gold price,” said Jeffrey Halley, a senior market analyst at Oanda.

Elsewhere, silver dropped 1.8% to $26.73/oz, platinum dipped 3.1% to $938.31 and palladium slipped 2.4% to $2,342.67.

Reuters