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The US dollar is going strong, but as many gold bugs know, that isn’t great news for the gold price. Silver, platinum and palladium also fared poorly today.
The US dollar is going strong, but as many gold bugs know, that isn’t great news for the gold price.
The yellow metal dropped below the $1,250-per-ounce mark today, with silver, platinum and palladium all following the downward trend. According to Reuters, it was the US dollar climbing to a 14-month high that put pressure on those commodities.
Spot gold reached a three-month low of $1,247.15 before edging back up to $1,249.34 midway through the afternoon. On the COMEX, futures for delivery in December sank $5.80, to $1,248.50. As Bloomberg reported, gold has lost approximately 5.6 percent so far this quarter, and Q3 could ultimately bring the metal’s first quarterly loss for 2014.
According to The Wall Street Journal, investors have been “flocking to the U.S. currency” as the country’s economic recovery quickens. Positive data has raised expectations that the Federal Reserve will raise interest rates earlier than expected.
James Cordier of Liberty Trading Group told the news outlet, “[t]he stronger dollar and weak U.S. inflation are keeping investors on the sidelines.”
Euro, geopolitics not helping
Alongside the dollar’s stellar performance, the euro has declined to a 14-month low. That’s also negatively affecting some of the commodities markets — Kitco News states that while a strong dollar pulls investors away from gold, the weak euro is raising “concerns in the EU regarding the potential for sustained deflationary consumer and producer price pressures.”
Furthermore, geopolitical tension surrounding Ukraine, which has been buoying up gold prices, appears to be easing. Prices spiked in July when a Malaysian passenger airplane was shot down in Eastern Ukraine, with that country accusing Russia of causing the crash. However, a ceasefire between the countries seems to be holding well, and the situation appears stable despite the fact that further sanctions are expected to be implemented by the European Union against Russia this week.
Indeed, Frank McGhee, head dealer at Integrated Brokerage Services in Chicago, told Bloomberg, “[p]olitical turmoil in various parts of the world that made gold attractive earlier this year seems to have eased, and now economics is overriding geopolitical events. People are moving to the dollar as the U.S. is emerging as the safe-haven economy.”
What’s next?
Moving forward, dedicated gold bugs will no doubt be watching for reports from the Federal Reserve as to whether or not interest rates will be raised — and, if so, by how much.
They’ll also likely be keeping an eye on other precious metals. Elsewhere on the market, platinum and palladium both lost 0.8 percent today to trade at $1,379.75 and $860 per ounce, respectively. For its part, silver fell 0.5 percent, hitting $18.89 per ounce.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.