Dollar Strength Undermines Gold Price
Monday midday trade saw gold trading at US$1,490.14 as traders kept a close eye on a strong dollar.
At 0933 GMT, gold was bid at US1,490.14 a troy ounce, from US$1,493.25 on Friday. US gold went down 0.2% to US$1,490.60 an ounce.
On May 2, gold hit a record high of US$1,575.79.
Some safe-haven purchasing of gold took place on Monday, as the dollar rose against the euro due to uncertainty over aid to several indebted euro-zone countries.
Finance ministers of the eurozone countries are to meet in Brussels, where they are expected to support a bailout for Portugal. It is also predicted that they will put pressure on Greece to deliver on fiscal and privatisation targets, as agreed upon, should it need emergency funding next year.
“Immediate concerns over peripheral debt troubles in the monetary union will not evaporate… The euro/dollar will probably continue to dominate trading,” VTB Capital reported in a note.
The dollar hit a seven-week high against the euro. News also broke about alleged attempted rape charges against IMF chief Dominique Strauss-Kahn, further adding to uncertainty.
Dan Brebner, analyst at Deutsche Bank, said: “If you have a strong dollar you will see gold fall, but in euro terms, gold will probably do quite well.”
In euro terms, gold remained close to Friday’s levels at €1,057.00. This is still very close to the all time high recorded in December, at €1,075.00.
Brebner also added that withdrawing from accomodative monetary policy could cause concern, since it could derail growth and in turn cause deflationary pressure.
“In that kind of environment (deflationary) gold will outperform industrial commodities. Gold is a deflation hedge, it is often used as a currency and by definition currencies outperform in deflationary environments,” Brebner argued.
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