Rangebound gold dips as dollar finds support
By Neil Dennis
13:07, 6 December 2021
Gold prices dipped on Monday as the fears surrounding new variants of coronavirus reduced the appeal of haven assets, while the dollar, supported by an increasingly hawkish Federal Reserve, traded close to 17-month highs.
Spot gold fell 0.3% to $1,779 (£889) an ounce in midday trade in London on Monday.
Three weeks ago, the precious metal was trading around the $1,880-an-ounce mark as the Fed maintained its “transitory” inflation stance, playing down the prospects of near-term interest rate increases.
Further support was seen during recent concerns over the rising rates of Covid infections around the world, which have underpinned a period of turbulence in equity markets.
However, increasingly hawkish signals from the Fed about persistently high inflation have weakened the appeal of gold as a hedge against rising price and steered investor focus towards the prospect of tighter monetary policy.
The Fed has already begun reducing its monthly asset purchases, and aims – at the current rate of tapering – to end its quantitative easing (QE) programme by mid-2022.
Last week, however, chair Jerome Powell told a congressional committee that “transitory” was no longer an appropriate description of rising price pressures, leading markets to price in the likelihood of a quicker ending to QE and subsequent rate increases.
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This development has supported the US Dollar Index, which now trades close to its highest level since July 2020. A stronger dollar also weakens the appeal of gold, which is denominated in the US currency. The higher the dollar moves, the more expensive it becomes for investors to buy in non-dollar currencies.
Ole Hansen, head of commodity strategy at Saxo bank, described the current gold market as “noisy, but rangebound and struggling for direction”.
He added: “What could change that in the short term remains unclear with the metal on one hand finding support from persistently low real yields and raised virus uncertainties, and on the other struggling with the potential for a more aggressive inflation fighting stance from the US Federal Reserve.”