Gold Suppressed By Strong Dollar

Gold Suppressed By Strong Dollar

Gold suppressed by strong dollar, trading near two-and-a-half-year lows amid the currency’s strength and aggressive moves by global central banks to tighten monetary policy.

The dollar surged against a basket of currencies after the British pound tumbled to a record low Monday following an announcement late last week that the U.K. government would implement new tax cuts and create investment incentives to promote growth.

A stronger dollar makes gold a less attractive investment to holders of other currencies. The U.S. currency has been buoyed by three consecutive 75-basis-point rate interest rate increases by the Federal Reserve – including one last week – to curb 40-year highs in inflation. The Bank of England last week also raised its benchmark rate by 50 basis points and said that the U.K. may already be in a recession. 

Front-month gold futures fell 1.7% last week to settle at $1,655.60 an ounce on Comex after they dropped 1.5% Friday. Bullion lost 3.1% in August after declining 1.4% in July. The metal retreated 3.5% in 2021. Currently, the December contract is down $3.2 (-0.19%) an ounce to $1652.40 and the DG spot price is $1646.80.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 30,454,517 ounces, the lowest level since March 2020, Reuters reported.

Aggressive monetary policy by central bankers around the world to rein in the rising costs of goods and services may trigger a global slowdown or recession, an increasing number of economists are warning. Gold is a traditional hedge against inflation and economic uncertainty, but the high dollar is keeping a lid on prices. 

Atlanta Fed President Raphael Bostic said Sunday that the central bank can still get control of inflation without causing substantial job losses. 

The Fed on Wednesday boosted its benchmark short-term rate to a range of 3% to 3.25%, the highest level since early 2008, and policymakers forecast that they will continue to increase rates to about 4.4% by the end of the year and keep raising them into 2023 to combat soaring inflation. 

Investors are betting there’s a 73.8% chance of a 75-basis-point rate increase at the next meeting of Fed policymakers in early November, with 26.2% projecting a 50-basis-point hike, according the CME FedWatch Tool. The Fed raised rates by 75 basis points each in June, July and now September and has increased rates by 300 basis points so far this year. 

Front-month silver futures dropped 2.4% last week to settle at $18.91 an ounce on Comex. The December contract slid 4.9% Friday. Silver tumbled 12% last month after slipping 0.8% in July. It retreated 12% in 2021. Silver prices are tied to industrial demand. The December contract is currently down $0.055 (-0.29%) an ounce to $18.855 and the DG spot price is flat at $18.99.

Spot palladium decreased 2.4% last week to $2,095.00 an ounce after falling 4.7% Friday. Palladium retreated 3.3% in August after rising 9.9% in July. It dropped 22% in 2021. Currently, the DG spot price is up $4.50 an ounce to $2105.00.

Spot platinum lost 5.4% last week to $867.30 an ounce after sliding 4.9% Friday. Platinum tumbled 6.1% in August after decreasing 0.3% in July. It fell 9.4% last year. The DG spot price is currently up $2.60 an ounce to $874.30.

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