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Dollar rising sends gold down

Spot gold fell by 1.18% to $1,712.90

The price of gold fell on Monday as the US dollar strengthened and hopes of a speedy economic recovery dampened demand for the precious metal.

The commodity fell by 1.18%% to $1,712.90 in the afternoon, while gold futures dipped 1.18% to $1,711.80.

There are three reasons driving this drop, according to Giles Coghlan, chief currency analyst, HYCM.

“Firstly, it has to with the performance of the USD. There is a clear correlation between gold and the greenback. When the dollar is weak, the price of gold tends to rise, and vice versa. With the passing of the recent stimulus bill and the US slowly transitioning out of lockdown, the market seems confident about the future prospects of the US economy, leading to a recovering USD and a drop in gold prices. Should the easing of lockdown measures continue, I would anticipate further declines in the price.”

Coghlan continued: “Secondly, rising real yields. This is like a poison for gold prices: when real yields rise, this pressures gold. Thirdly, gold ETFs have been falling for over 25+ days. The fall in gold ETFs heavily influences gold prices and funds have plenty more to sell. The outlook for gold looks to be a clear sell on rallies in the current environment.”

The dollar index held steady just below four-month highs against its rivals, while gold’s safe-haven status came under threat as investors turned towards riskier assets.

Speculators will now look ahead to Joe Biden’s infrastructure spending package, set for Wednesday, and rumoured to be between $3trn and $4trn.

While many see the precious metal as a hedge against inflation that could come in the wake of Biden’s stimulus, a recent rise in US Treasury yields has dented its attractiveness.

“We see virtually no scope for noticeably higher prices until mid-year, though gold should be able to make significant gains in the second half of the year,” Commerzbank analysts wrote in a note.

“Gold is currently lacking the support of financial investors, as buying interest is low.”

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