Gold Drops as US Dollar Strengthens Prior to Fed Meeting

Precious Metals
Gold Investing

Gold fell to a six-week low as the dollar strengthened ahead of a Fed policy meeting, causing the yellow metal to break through key support levels.

The gold price dipped to a six-week low on Tuesday (May 1), as the US dollar climbed ahead of a US Federal Open Market Committee policy meeting.

The upcoming meeting pushed the dollar to a more than three-month high, while gold was facing lows and had broken through key support levels in the range of US$1,317 to US$1,320 per ounce.

“Investors are buying dollars and this is adding pressure on gold,” said ActivTrades analyst Carlo Alberto de Casa.

“[The] dollar index jumped above 92, while markets are seeing growing chances for a fourth hike in 2018. Almost 50 percent of traders [are] expecting a fourth raise by the end of the year,” he added.

Although the two-day meeting is focused on policy, market watchers are on standby, looking for anything that could hint at an interest rate hike in June.

If investors believe that a hike will take place in June, they could begin bracing for it in the form of a resource selloff, which could find the precious metal plummeting even further.

“If we continue to see the US economy do well and the Fed signals a hawkish tone, with many observers advocating four hikes for the year, this could be bad news for gold for now,” cautioned TD Securities (TSX:TD) in a note.

However, analysts at the firmdo not expect the yellow metal to stay down, stating, “while a move toward a low of US$1,300 an ounce is possible in the not-too-distant future, we think there will be a steadier rebound toward US$1,350s in the latter half of 2018.”

As of 10:31 a.m. EST on Tuesday gold was down 0.78 percent, trading at US$1,304.60.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.  

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