Gold Drops As Nervous Traders Again Seek Haven In The Dollar

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The metal slipped as much as 2.2% after ending Wednesday 0.6% higher in the wake of a searing inflation report from the US. Investors bet that the Fed is more likely than not to raise interest rates by 100 basis points when it meets later this month, a move that would boost the chances of the economy entering a recession.

By Thursday, investors had digested the inflation news and again turned away from gold to the greenback as a hedge, according to David Lennox, a resources analyst at Fat Prophets.

“We’d really need to see a much lower US dollar for gold to get a sustained positive kick going forward,” Lennox said. “Investors are turning more to the greenback than bullion as a haven asset.”

The Bloomberg Dollar Spot Index gained 0.7% and touched its highest level on record, eclipsing the 2020 peak from the Covid-19 pandemic.

Gold prices have been volatile this year as Russia’s invasion of Ukraine spurred a rally to well above $2,000 an ounce in March, only for the momentum to fade as the growth and inflation outlook shifted. In recent weeks, investors have cut holdings in bullion-backed exchange-traded funds.

The strong dollar is weighing on bullion price “as are the higher interest rate expectations,” Commerzbank AG analyst Daniel Briesemann said in an interview.

“A Fed rate hike of 100 basis points at the next meeting is being priced in, according to the Fed Fund Futures,” Briesemann said. “In such an environment gold can still go lower.”

Spot gold was down…

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