'Firm U.S. dollar is like a millstone around the neck of precious metals': Commerzbank
(Kitco News) The U.S. dollar’s continued advance is weighing heavily on the gold price despite the rise in risk aversion in the marketplace, according to Commerzbank. “The firm U.S. dollar is like a millstone around the neck of precious metals prices,” writes Commerzbank commodity analyst Carsten Fritsch. The reasons behind the dollar strength could be the rise of coronavirus cases and the fear of new lockdown measures in Europe, notes Fritsch. It could also be “latest remarks made about the exchange rate by various central banks, or yesterday’s comment by a regional Fed president that interest rates could be hiked even before the average inflation target of 2% is reached,” the analyst adds. However, this USD strength is not likely to last considering that the U.S. monetary policy will remain extremely expansionary for a very long time. Commerzbank views the current weakness in the gold price as only temporary. “There is the threat of political chaos in the U.S. if the elections in six weeks’ time are followed by a prolonged period of legal wrangling over who is the next U.S. president. We therefore regard the current weakness of the gold price as only a brief episode and expect prices to rise considerably in the coming weeks,” Fritsch says.