Gold flexing muscles despite strong U.S. dollar
The catalyst is the coronavirus outbreak in China that began early this year and has spread, prompting worries about an adverse impact on the global economy. Apple Inc. issued a sales warning early Tuesday, saying the company would miss first-quarter guidance due to a slower pace of manufacturing as a result of the coronavirus.
“[Gold] is finding buoyancy from increased risk aversion, as reflected also in falling stock markets and declining bond yields,” said Carsten Fritsch, analyst with Commerzbank. “The gold price is continuing to defy the firm U.S. dollar, which on a trade-weighted basis is priced at a 4½-month high.”
Normally, a stronger U.S. dollar pressures commodities in general, since this makes them more expensive in other currencies and thus can hurt global demand. A muscular greenback also means less buying of gold as an alternative currency.
Still, spot gold so far Tuesday has traded as high as $1,599.30 an ounce – a level exceeded only one day (Jan. 6 on U.S.-Iran tensions) since April 2013. Gold’s rise occurred even though the spot U.S. dollar index has been as lofty as 99.474, its strongest level since October.
“Gold and the dollar are going up for the same reason,” said Daniel Pavilonis, senior commodities broker with RJO Futures. “There is a flight to quality in the dollar and a flight to quality in gold because of the coronavirus.”
The Apple warning, due to the virus, could be a harbinger of more economic weakness to come, Pavilonis said.
“It can hurt the global economy overall. Where would your money have the most benefit? I think the U.S. dollar for one, but also gold. As this [virus] spreads to other countries...there is a scare blanket in the market.”
Gold is climbing at the same time that there is also demand for U.S. Treasury bonds, said George Gero, managing director with RBC Wealth Management.
“Gold is a haven, along with U.S. interest-rate securities,” Gero said. “I’m seeing people interested in both.”
Gero commented that the greenback is not rising because investors are anticipating any U.S. interest rates due to strong economic growth. Instead, he said, the greenback’s gains are due to economic weakness in other countries, thereby hurting their currencies.
Pavilonis added that the dollar is “looking pretty toppy” and could stall, however. He pointed out that the spot dollar index is approaching a significant chart point – the 99.667 peak from October that was the strongest level since May 2017.
“I think this is a real resistance level up here,” he said.