Gold Prices on Ease Due to Stronger Dollar

February 11, 2020 | Tuesday



On Tuesday, gold eased from its almost one-week high hit during the last session. And this was because of a stronger dollar and an uptick in equities as China's factories gradually went back to work amid increasing death toll from the coronavirus epidemic. In addition to that, spot gold declined by 0.2% to $1,586.11 an ounce. The metal brushed its highest since February 4 at $1,576.76 on Monday. Then, U.S. gold futures edged lower by 0.5% to $1,571.70. Investors moved to the safety of the U.S. dollar and the Japanese yen as China revealed 108 new deaths. And its total death toll rose to 1,016. At the same time, doubts flew around about how fast the country's factories could get back to work. ING analyst Warren Patterson stated, "The dollar index has been trending higher since late January and early February, that's one of the factors keeping a cap on gold prices." Also, he explained that gold's trajectory might rely on how central banks respond to the economic impact of the virus. If ever they see some easing as a result of the virus, then they would see underpinned support for gold prices. Aside from that, Asian shares bounced back after a record run in Wall Street. And Chinese policymakers are expected to show more stimulus measures, including more fiscal spending and interest rate cuts. On the other hand, in the United States, two Federal Reserve policymakers played down the effect of the virus on the domestic economy. Now, the attention is on Fed Chair Jerome Powell's testimony before Congress. And they expect Powell to repeat that the U.S economy is doing well, but that interest rates can stay as it is, given subdued inflation.

The Effect of Interest Rates

Gold is highly sensitive to any kind of reduction in interest rates. It diminishes the opportunity cost of holding non-yielding bullion. Also, rate cuts weigh on the dollar, in which gold is priced. But still, some analysts claimed that the economic risks coming from the coronavirus might prompt a change in the Fed's stance. Chief market strategist Stephen Innes noted, "The nCoV adds to a growing list of economic growth concerns that could see the Fed shift into dovish gears later in 2020." He added that a fall in U.S. treasury yields was also seen as a support for gold. But the main reason would remain Fed policy. Meanwhile, palladium was up by 0.2% to $2,359 per ounce. And silver slipped 0.1% to $17.74. Then, platinum rose 0.3% to $963.46.


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