Gold prices settled slightly higher on Wednesday, ending a three-session streak of declines as a benchmark dollar index eased back toward session lows, allowing the yellow metal to avoid a finish in correction territory.
August gold GCQ8, +0.01% tacked on 60 cents, or less than 0.1%, to settle at $1,227.90 an ounce, giving up earlier declines that saw prices touch a low of $1,220.90. The precious commodity has thus far tumbled 9.9% since its peak on Jan. 15 at $1,362.90 an ounce, placing it near correction territory which is usually characterized as a fall from a recent peak of at least 10% (see chart below):
A finish at about $1,226 would mark correction territory, and would be the metal’s first such tumble since the end of 2016, according to WSJ Market Data Group.
The bulk of overall 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, +0.12% which gauges a half-dozen currencies against the buck, the dollar was up 0.1% Wednesday at 95.09, but near the day’s low of 94.96. It has gained 3.2% so far this year. Gold has a year-to-date loss of more than 6% (see chart below showing the relative moves of the assets thus far this year with the dollar in blue):
Source: FactSet
The ICE U.S. Dollar index has powered higher this year as gold has weakenedGold’s 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.
“I do not believe that the trade wars at present are the dominant issue for gold and the dollar,” Michael Kosares, founder of gold broker USAGOLD, told MarketWatch. “Both, I believe, are still caught up in a syndrome dictated by dovish interest-rate policy across both oceans, while the U.S. continues to raise rates. That could all change in a heartbeat, though, if the inflation rate begins to run consistently higher than interest rates.”
Comments from Federal Reserve Chairman Jerome Powell during congressional testimony implies that gold may be in for a further decline. Powell pointed 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, which could propel the greenback further and lift the rates of benchmark fixed-income assets like the 10-year Treasury note TMUBMUSD10Y, +0.29% most recently yielding at 2.87%.
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.
Read: ‘Death cross’ forms in gold for first time since 2016, even as stock market slumps
Fawad Razaqzada, a technical analyst at Forex.com, said the current dispute between the U.S. and its trading partners in China, North America, and Europe has actually been a negative for gold because it means rising import costs may drive up inflationary pressures. Rising inflation could compel the Fed to raise rates more briskly.
Gold prices, meanwhile, showed little reaction in electronic trading Wednesday afternoon following the release of the Federal Reserve’s Beige Book. The snapshot of domestic economic activity found that the rapidly expanding U.S. economy is running out of room to grow any faster.
A popular fund tracking gold, the SPDR Gold Shares GLD, +0.00% traded flat Wednesday and was 5.9% lower year to date.
Meanwhile, September silver SIU8, -0.30% settled down 4.3 cents, or 0.3%, at $15.574 an ounce. Silver has lost 1.5% so far this week, with the metal off nearly 12% since its Jan. 25 peak at $17.62 an ounce.
Elsewhere on Comex, September copper HGU8, +0.51% added 0.5% to $2.76 a pound. October platinum PLV8, +0.04% lost 0.3% to $817.80 an ounce, while September palladium PAU8, -0.84% ended 0.8% lower at $901.80 an ounce.
