A strong dollar makes dollar-denominated commodities like gold more expensive to buyers using other currencies.
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LONDON – Gold rose on Tuesday as the dollar receded slightly and European shares fell, though expectations that the US Federal Reserve will raise interest rates next week kept gains in check.
On Friday gold raced higher after a so-so jobs report in the USA injected some doubts about the bearish case for the metal.
“If the Dollar is unable to rally”, says a gold trading note from Swiss refiner and finance group MKS, “we may see further squeezes towards $1095-1100 in the short term leading into next week’s FOMC meeting”.
Spot gold was little bit changed at $1,071.52 an ounce by 0009 GMT.
The most actively traded gold futures contract, for February delivery, settled 10 cents higher at $1,075.30 a troy ounce on the Comex division of the New York Mercantile Exchange.
On Friday, the latest U.S.jobs report was above analyst expectations in October, solidifying investors’ view that the Federal Reserve will raise interest rates next week.
There are risks of large fund outflows if prices trade closer to $1,000, Barclays said on Monday.
With next week’s USA interest-rate rise now taken for granted, the “muted inflation outlook [means] gold should remain out of favour among investors”, the bank says, cutting its end-2016 price forecast to $1000 per ounce.
“Plunging commodity prices and a stronger dollar set the stage for a retreat in gold prices”, HSBC analyst James Steel said.
“Overall, the lack of inflationary pressures will reduce the demand for gold as an inflationary hedge, thus limiting the upward mobility of its prices”, Vyanne Lai, an economist at National Australia Bank in Melbourne, said by e-mail.
“Investors are paying close attention to her terminology, and with sound bites like the United States economy is “doing well” and a rate rise remains “a live option”, gold has seen substantial outflows”. Palladium fell 1 percent while platinum added 0.4 percent. “The Fed has indicated that the monetary tightening cycle will be a gradual one, which suggests that gold prices are likely to follow a mild downward trend next year”, said Lai. March silver shed 19.6 cents, or 1.4%, to $14.332 an ounce and March copper lost 2.8 cents, or 1.4%, to $2.051 a pound.
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He predicted that gold could strike $1000 early next year, against a backdrop of rising U.S. borrowing costs.
