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Gold futures headed higher on Monday, with the yellow metal attempting to find its footing after a fifth straight weekly decline as a fierce dollar rally relented.
Price action
-
Gold for August delivery
GC00,
+0.58% GCQ22,
+0.58%
rose $10.10, or 0.6%, to $1,713.70 an ounce on Comex. -
September silver
SIU22,
+1.57%
rose 24.6 cents, or 1.3%, to $18.84 an ounce. -
September copper
HGU22,
+3.87%
rose 12.4 cents, or 3.8%, to $3.575 a pound. -
October platinum
PLV22,
+3.47%
was up 2.2% at $849 an ounce, while September palladium
PAU22,
+1.13%
added 0.5% to $1,839 an ounce.
Market drivers
Gold has suffered as the U.S. dollar has gone on a rampage in 2022, with the ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, hitting a 20-year high last week as the euro dipped below parity and the Japanese yen slumped to its weakest since 1998. A strong dollar can be a headwind for commodities priced in the currency, making them more expensive to users of other currencies.
Any appetite for safe-haven buying amid persistent inflation pressure is “overwhelmed by international buyers’ reduced purchasing power,” Andrew Schrage, chief executive officer at Money Crashers, told MarketWatch in recent comments. “With the dollar so strong, there’s simply not enough of a bid for gold right now.”
However, the dollar rally took a breather Monday, with the ICE U.S. Dollar Index off nearly 1%, giving gold “the opportunity to recover some of the ground it lost last week,” said Rupert Rowling, market analyst at Kinesis Money, in a note. Year to date, the index is still up by around 11%.
The dollar respite Monday came as Federal Reserve officials cooled speculation that the Fed would move to raise interest rates by 100 basis points, or a full percentage point, when they meet next week, signaling they would likely move rates up by 75 basis points for the second straight meeting.
“Nonetheless a strong dollar allied by central banks seeking to continue increasing interest rates presents a challenging environment for gold to make much headway and after the dramatic plunges of recent weeks, it is hard to see how the precious metal can gain sufficient momentum to climb back above $1,800 an ounce,” Rowling wrote.
For gold bulls, the big question is whether inflation gets under control before the dollar peaks, said Schrage. “If the dollar weakens from here, expect less downside risk.”
The long-term bull case for gold “requires persistent dollar weakness, chronic geopolitical instability, or — more speculatively — some sort of technological catalyst that significantly increases industrial demand for the metal,” he said.
