Gold hits six-week low as the dollar surges
By Neil Dennis
15:00, 28 September 2021
Gold prices fell sharply on Tuesday, hitting a six-week low, as the dollar surged following a sell-off in US Treasury bonds.
Spot gold fell 1.3% to $1,729 (£1,277) an ounce in mid-afternoon trade in London – its lowest point since 11 August – as the dollar climbed against its main rivals. The US Dollar Index – a measure of the currency’s relative strength against a basket of its rivals – rose 0.4% to 93.75, a 10-month high.
Dollar vulnerability
The price of gold is vulnerable to dollar strength due to its denomination in the US currency – making it more expensive and, therefore, less attractive to buyers using alternative currencies.
Gold buyers in the UK will be particularly hard hit on Tuesday after seeing the pound lose early gains against the dollar to fall steeply by 1% to $1.356 – in morning trade, the pound had climbed as high as $1.372.
Steen Jakobsen, chief investment officer at Saxo Bank, said that gold was hit for a second day with “a firmer dollar and rising US Treasury yields being offset by surging energy prices reigniting the focus on inflation and its potential negative impact on company earnings”.
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Treasuries shunned
Indeed, investors shunned Treasuries in recent sessions as inflationary pressures increase the likelihood of an earlier tapering of bond purchases.
Monday’s auction of two-year Treasuries had a bid-to-cover ratio of just 2.28 – the lowest since December 2008. Because of this poor demand, the US Treasury had to offer a yield of 0.31% – the highest since March 2020.
“It may be a sign that the market is beginning to price Fed’s tightening monetary policies and the risk coming from the debt ceiling saga,” added Jakobsen.
Inflation comes under the spotlight on Friday as the Federal Reserve’s favoured measure – Personal Consumption Expenditures – is published. In July, the headline rate of annual inflation under this measure hit 4.2% and the consensus forecast for August’s data is for a similar reading.
Read more: Economic preview – Price pressures in the US and Eurozone
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