Gold gets chipped by dollar’s biggest climb in seven years

BY ONOME AMUGE

Gold dived to its second consecutive monthly loss despite gaining one percent for the week to hold above the relatively bullish level of $1,900 an ounce level.

The yellow metal’s slump came after the dollar index rose 4.6 percent for April, its highest since January 2015. U.S. bond yields, which often run side-by-side with the dollar, also dented gold’s appeal as it rose almost 24 percent for April for its second monthly increase in a row after a near 29 percent jump in March.

Front-month gold futures on New York’s Comex gained 1.1 percent or $20.40 for the day at $1,911.70 per ounce. It, however, declined 1.9 percent for the month, even as it recorded 4.5 percent gain for the year.

Craig Erlam, senior analyst at OANDA, who wondered if gold could stabilise after the recent plunge, noted that, “It’s been an awful couple of weeks for the precious metal since coming close to breaking above $2,000 for the first time in over a month.”

Erlam observed that the dollar rally has been relentless, adding that it has been a real drag on the yellow metal.

“Gold will continue to see safe haven and inflation hedge appeal so I don’t see the recent rate of decline continuing, even if the dollar remains strong. That said, there isn’t much of a bullish case for the yellow metal if the dollar continues to tear higher,” he added.

Despite gold’s recent turbulence, Mark Desormeaux, senior economist at Canadian multinational financial services company, Scotiabank, said he is increasing his forecast for the metal.

According to Desormeaux, gold investors may be betting that the Fed will avoid the most aggressive path of policy action later this year over concerns of slowing economic growth. This, he explained, will presumably keep inflation higher for a longer period which is likely to lift the safe haven metal’s appeal.

Meanwhile, a quarterly trends report from the World Gold Council showed that the metal had a strong first quarter with demand rising 34 percent.

“In our view, gold price strength, equity market weakness, rapidly rising inflation expectations and unexpected geopolitical events during the quarter were the key drivers of this demand, even in spite of higher nominal rates,” the report stated.

A myriad of global economic woes, record-breaking inflation, an ongoing COVID crisis in China, and the Russian invasion of Ukraine were also reported to have supported gold’s demand as a safe haven asset.

The report noted further that retail investment and gold ETF inflows were both strong, but futures and OTC demand were muted, suggesting that investor participation in gold is currently not overcrowded.

It added that gold could attract further demand as central banks seek to reduce risk amid heightened uncertainty.