Gold Dragged Down To Session Lows By Rising U.S. Dollar
(Kitco News) - Gold prices dropped to session lows amid increased selling pressure as the U.S. dollar index began to climb after markets closed on Monday.
“A drop lower in gold prices has been mostly because of the climbing U.S. dollar. The dollar is positive on the day and began its increase around 1 p.m. The U.S. dollar has been a driver for gold over the last month,” TD Securities commodity strategist Ryan McKay told Kitco News.
The U.S. dollar has more upside potential in the short term, added McKay, but pointed out that in the long-term gold’s primary driver will be the Federal Reserve.
“It will be more of a Fed story for gold and the Fed’s willingness to overshoot inflation. Flat yield curb is likely to keep the Fed from being too aggressive,” he said.
Gold’s outlook is brighter for the second half of 2018, according to McKay, who sees gold rising to $1,330-$1,350 an ounce.
“For the second half of the year, we are bearish on the dollar. Gold will likely do well in the second half of the year,” he said.
Currency analysts at BNP Paribas also see signs that the U.S. dollar rally is running out of steam.
“The question for currency market participants is whether persistent Fed tightening can provide meaningful support for the USD. We think the U.S. policy tightening outlook played only a secondary role in the USD’s April rally and would not assume that continued hikes will provide any additional support for the USD in the months ahead,” analysts said in a note published on Monday.
Kitco’s senior technical analyst Jim Wyckoff described the market’s risk environment as “keener,” which is putting modest pressure on safe-havens such as gold.
“Still, the gold and silver market bulls are encouraged by recent price action that suggests these metals have put in near-term market bottoms,” Wyckoff wrote in his PM Roundup. “First resistance is seen at last week’s high of $1,326.30 and then at $1,330.00. First support is seen at $1,310.00 and then at last week’s low of $1,304.20.”