LONDON – Gold prices scaled a two-week peak on Monday as the dollar slumped to a six-week low after a G20 weekend summit that was dominated by the U.S. administration’s protectionist stance on global trade.
The precious metal has been rising since last Wednesday, when the dollar dropped after the U.S. Federal Reserve raised interest rates but stopped short of predicting a sharper acceleration in monetary tightening over the next two years.
Gold is highly sensitive to falling interest rates, which decrease the opportunity cost of holding non-yielding bullion. Falling rates also weigh on the dollar, making dollar-priced gold cheaper for non-U.S. investors.
“Overall the geopolitical outlook still points to several hotspots … and we’re not going to see a focus on rate rises for the foreseeable future now, because that’s out the way. Over the next few weeks one has to favour the upside,” said Ole Hanson, head of commodity strategy at Saxo Bank.
Spot gold rose 0.2 percent to $1,231.31 an ounce by 1228 GMT, having earlier touched $1,235.50, its highest since March 6. U.S. gold futures gained 0.1 percent to $1,231.50.
Gold has rebounded more than $35 from the low hit before the Fed policy announcement last Wednesday, while the dollar has fallen 1.7 percent from its high of 101.71 the same day.
“The dovish outlook … following last Wednesday’s Fed meeting is clearly still having an impact. This is likely to lure a number of speculative financial investors back into gold after this group massively reduced their net long positions in the run-up to the meeting,” Commerzbank said in a note.
Money managers reduced their net long, or buy, positions in gold by 44,058 lots to 49,835 lots during the week to March 14, the lowest since early January. Managed short positions rose by nearly 10,000 lots to 70,454. Spot gold is expected to test resistance at $1,237, a break above which could lead to gains to $1,243, Reuters technical analyst Wang Tao said.
Denting the bullish gold narrative somewhat, holdings of SPDR Gold , the world’s largest gold-backed exchange-traded fund, fell 0.35 percent to 834.10 tonnes on Friday.
Spot silver rose 0.5 percent to $17.37 an ounce, while platinum was up 0.2 percent at $960.25 and palladium firmed by 0.2 percent to $774.30.