(Kitco News) - Gold's lackluster performance against the U.S. dollar could be masking its role as a global safe-haven asset as it outperforms the Japanese yen and British pound sterling.
The gold market continues to hold support at $1,700 an ounce but is struggling to attract consistent momentum after ending August down 2% on the month, its fifth monthly loss. December gold futures last traded at $1,721.40, up 0.50% on the day.
Despite the dismal performance against the U.S. dollar, gold is starting the new month with solid gains against the sterling and the yen. Spot gold against the yen last traded at ¥4,292 an ounce, up 1.77% on the day. Gold's rally has broken a two-month consolidation period.
In the U.K., spot gold is up roughly 1% against the pound, last trading at £1,491 an ounce. The yellow metal appears to be on the cusp of breaking out of a one-month consolidation pattern.
The rally in gold against sterling comes as the currency falls to a 35-year low against the U.S. dollar. Meanwhile, the U.S. dollar is trading near a 25-year high against the yen.
"Gold's performance against the pound and yen and other global currencies puts to rest the question of whether or not gold is a store of value," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "Gold strength in other currencies is a sign that when the U.S. dollar starts to weaken, gold will explode higher."
Although gold's performance against the pound and yen could be a silver lining in the growing storm, Cieszynski, added that he doesn't see it breaking out against the U.S. dollar anytime soon.
"As long as bond yields continue to trend higher, gold will struggle against the U.S. dollar," he said.
However, Craig Erlam, senior U.K. and European market analyst at OANDA, cautioned investors about reading too much into gold's performance against other currencies.
Erlam said that gold is rallying against the yen because the currency is being destroyed due to the growing monetary policy gap. The Bank of Japan is the last major central bank that has been cutting and easing its monetary policy as it tries unsuccessfully to boost inflation pressures.
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"Gold is performing well against the Yen because that currency is in terrible shape," he said.
At the same time, gold is up against the pound because the U.K. faces significant economic headwinds that are forcing its central bank to slow down its monetary policy tightening.
Erlam said that inflation and energy crises have significantly damaged the economy, which is weighing on the pound.
"The Federal Reserve still sees the possibility of a soft landing while the Bank of England has given up and just wants to land without crashing the plane too badly," he said.
"Looking at gold, I think it has less to do with gold's safe-haven appeal and more to do with how badly other currencies are performing," he said.
However, Erlam added he still sees relative strength in the gold market against the greenback.
"Gold is down against the dollar, but it is holding up well and $1,700 represents a decent price given the current environment," he said. "A few years ago, if you had told people that gold would be trading at $1,700, they would have said that is fairly expensive and it is."
