Gold price nears 11-month low with dollar winning battle of havens

Gold plummeted to a near 11-month low on Thursday as investors again turned to the US dollar as the preferred haven amid expectations for more aggressive monetary tightening measures by the Federal Reserve.

Spot gold fell 1.7% to $1,706.42 by 12:50 p.m. ET, having been down as much as 2.2% earlier in the session. US gold futures also dropped by 1.7% to $1,705.50 per ounce in New York.

Meanwhile, the US dollar soared to a new 20-year high, emerging as a preferred save haven in light of growing economic risks of late, at gold’s expense.

Gold ended Wednesday’s session slightly higher in the wake of a searing US inflation report, which showed the largest annual increase in inflation in 40-1/2 years. Investors placed more bets on the Federal Reserve being less likely to raise interest rates by 100 basis points (bps) when it meets later this month, a move that would boost the chances of a recession and support havens like gold.

However, by Thursday, investors had digested the inflation news and again turned away from gold to the greenback as their preferred hedge, according to David Lennox, a resources analyst at Fat Prophets, in a Bloomberg interview.

“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 stronger dollar is pushing gold lower. After the consumer inflation data, traders have increased their expectations from a 75 bps rate hike to a 100 bps rate hike, hurting gold,” Philip Streible, chief market strategist at Blue Line Futures in Chicago, told Reuters.

“Gold will unlikely see any upside unless inflation deteriorates enough to stop interest rate hikes or if other central banks start to be as aggressive as Fed, and that can weaken dollar,” Streible added.

“A feature in the marketplace for some time has been the appreciation of the dollar… History suggests this phenomenon can remain in place for quite some time, only making the greenback stronger,” said Jim Wyckoff, senior analyst at Kitco Metals.