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Gold heads for the worst month of this year as dollar rebounds

Dollar’s gain and US equity rally have cut demand for havens

Gold traded near the lowest since August and headed for the biggest monthly loss this year as President Donald Trump’s plan to cut taxes kept the dollar buoyant.

Bullion was little changed at $1 284.48 an ounce in London after earlier losing as much as 0.4% to the lowest since August 25. Prices are down 2.8 % this month on optimism over the health of the American economy and expectations for higher interest rates.

 

 

Bullion holdings in exchange-traded funds are at the highest since November amid growing tension between Trump and North Korea’s Kim Jong Un, who was dubbed as “rocket man” by the US president after multiple missile tests. Still, gold prices have fallen for the past three weeks as the Federal Reserve prepares to tighten monetary policy.

Gold prices have been “unable to stand the specter of higher US interest rates and a stronger dollar,” Ed Meir, an analyst at INTL FCStone Inc. in New York, said by email. “The political focus in Washington has now shifted from the ill-fated health-care legislation to more growth-friendly issues like tax cuts and reforms.”

Silver rose 0.3 % to $16.8185 an ounce.

50-day average

  • Gold closed below its 50-day moving average for the first time since July on Wednesday.
  • That could be considered a bearish sign by traders who study charts. When gold fell below that level in June, prices dropped almost 4% in three weeks.

Macro impact

  • The US currency has surged in September after dropping almost every month this year, while US equities are near records, curbing demand to hold gold.
  • Odds of rate hike by December have increased to 73 %. “
  • We expect the dollar to continue to recover, which will probably weigh on gold, silver and platinum prices,” ABN Amro Bank NV analyst Georgette Boele said in a note to clients.

Palladium overtakes platinum

  • Palladium became more expensive than platinum for the first time in 16 years on Wednesday, partly as waning consumer demand for diesel cars changed the outlook for the metals.
  • “Palladium is a safer buy,” Bernard Dahdah, a London-based commodities analyst at Natixis, said by email. It’s “being driven by expectations that there will be increase gasoline-powered car sales as the expense of diesel ones.”
  • Increased demand for palladium from automakers has seen the market deficit widen, while platinum may be moving toward a surplus, said Ole Hansen, head of commodity strategy at Saxo Bank.
  • Palladium gained 0.5% to $933.92 an ounce, while platinum added 0.4% to $923.91 an ounce.

ETF flows

  • Holdings in ETFs backed by gold rose a second day on Wednesday, climbing to 2 155.1 metric tons.
  • Palladium ETF holdings are near the highest since January.
  • Platinum holdings fell for the first time in three days; silver assets also declined.

© 2017 Bloomberg

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