Gold Tests USD 4,000 an Ounce as the Dollar Hits a 13-Month High
In mid-week the gold price approached the psychological level of USD 4,000 per ounce and hit an almost two-week low. Spot gold fell by around 1.2% to roughly USD 4,063 per ounce, and futures dropped 1.7%. According to Reuters (via Investing.com), this is a decline in five of the last six trading sessions. What is behind it, and how should a long-term investor view it?
Why gold is falling
The main driver is the strong US dollar – the DXY dollar index rose to a new 13-month high. Markets have increased bets that the US Fed could raise interest rates as early as July and again later in the year. A stronger dollar makes gold more expensive for holders of other currencies, and higher interest rates raise the opportunity cost of holding gold, which pays no interest itself.
The second factor is easing geopolitical concern. Diplomatic efforts between the USA and Iran and fading fears of supply disruption in the Middle East have reduced demand for gold as a “safe haven”. According to analysts (ING), expectations about the Fed currently outweigh geopolitical support.
The market at a glance
| Asset | Value | Change |
|---|---|---|
| Gold (spot) | ≈ USD 4,063/oz | −1.2% |
| Gold (futures) | ≈ USD 4,080/oz | −1.7% |
| Silver | ≈ USD 61.4/oz | −0.2% |
| Platinum | ≈ USD 1,641/oz | −0.8% |
| Dollar index (DXY) | 13-month high | +0.1% |
Note: silver lost over 5% in the previous session, so its slight decline follows a sharper drop. The figures are indicative, as at the time the source was published.
What the market is watching next
Markets are now pricing in a roughly 70% probability of a rate hike by September and fully pricing in another by December. A key guide will be the PCE inflation data on Thursday, which may hint at the Fed’s next moves – and therefore at gold’s short-term direction.
What to take away as a long-term investor
Short-term price swings are part of investing in precious metals. Gold reacts to the strength of the dollar, interest rates and market sentiment – up as well as down. For an investor building a physical reserve over years, one week’s movement is more noise than a turning point. That is exactly why many choose regular buying, which spreads purchases over time and reduces the effect of timing. With smaller purchases, also keep an eye on the premium over the metal price.
If you are weighing up the balance between metals, the comparison gold vs. silver may help. You will find new bars and coins in our range of investment gold and investment silver.
Data source: Reuters / Investing.com. This article describes current market events; past performance is no guarantee of future results.
About the author
HEFFO, GOLDU’s blogger, sees everything in context. From a pile of global numbers and news, he fishes out what matters and adds a conclusion you would not have expected. The precision of his conclusions and his love of chocolate suggest he has lived in Switzerland for years.
