Gold eased on Wednesday as the dollar climbed to a 14-year high against a currency basket, extending a week-long rally driven by a surge in Treasury yields after Donald Trump's election to the U.S. presidency.
The metal has shed more than $100 an ounce from last Wednesday's post-election high on the back of the sharp rise in bond yields and burgeoning appetite for risk.
Spot gold was down 0.2 percent at $1,225.06 an ounce by 2:05 p.m. EST (1905 GMT), while U.S. gold futures for December delivery settled down 0.05 percent at $1,223.90.
Three main factors are keeping the U.S. dollar strong, says Brown Brothers Harriman. “The first is the likely December Fed hike. Prior to the election, the market was assessing around a two-thirds chance. Now both the CME and Bloomberg's WIRP estimate the odds above 90%. Investors have also increased the anticipated path of the Fed next year as well,” BBH says. Second, the incoming U.S. administration has promised significant fiscal stimulus. “Of course, there is more unknown than known at this juncture,” BBH says. “However, it does seem that some measure of fiscal stimulus will be forthcoming.” A third factor is the rise of the populist right, BBH says. “Europe is particularly vulnerable,” BBH says. “The calendar is not particularly kind, with the Italian referendum and Austrian presidential (do-over) election in early December. The Dutch go the polls in early spring. These events are like a dress rehearsal for the French presidential election….The combination of these considerations and market positioning helps explains the persistence of some of the moves in the capital markets, including the strength of the dollar.” The euro has hit its lowest level of the year against the U.S. currency, falling as far as $1.06877 so far Wednesday. Moves in the greenback are closely monitored by metals traders since the precious and base complex alike often move inversely to the dollar.
Physical demand for gold appears to be increasing on dips to near $1,200 an ounce, which may help stem further losses, says HSBC. The bank points out that India's October trade deficit widened to $10.16 billion, compared with $8.34 billion in the previous month, as gold imports more than doubled. Gold imports rose to $3.5 billion from a year ago, according to official government data. “High local premiums in India and China are price-positive for gold but do not necessarily mean immediate demand for imports,” the bank says.
Reference: Kitco, Reuters
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