Gold falls victim to US dollar strength

Market report Michael Blumenroth – 05.02.2021

Weekly market report

Gold prices kicked off the new week from a position of strength. On Friday and Monday morning, it tagged along the strong rise in silver prices. So what happened then? Similar to individual stocks, which had come into the focus of investors last week after a buying frenzy spread across social networks, silver prices also shot up when they were called completely undervalued on the same networks. On Monday morning, buying in Asia sent silver prices to an eight-year high, and some of its lustre rubbed off on gold. 

US vaccine progress indicates faster economic recovery

The silver price rally was short-lived, and gold prices also retreated. Over the course of the week, the increasing US dollar strength weighed on gold. The US coronavirus vaccination campaign is progressing more rapidly than most other countries’ efforts, causing analysts to expect swifter economic recovery for the US. This view is also supported by the week’s economic data. As a result, US Treasury yields rose significantly over the past week. By contrast, a number of other currencies, including the euro, dropped against the US dollar to their lowest levels since 1 December. Gold was unable to withstand the pressure of higher US yields and a rising US dollar and slipped to its lowest level since the beginning of December.

Gold in US dollars dips below 1,800 mark

After the gold price had risen from US$1,850 per ounce to 1,875 last Friday, it reverted back to 1,872 on Monday and 1,835 by Wednesday evening. As the US dollar continued to strengthen, the precious metal sank to 1,785 yesterday, no doubt accelerated by stop-loss sales when it dipped below the 1,800 mark. Gold currently trades at US$1,799 per ounce, thus struggling to regain ground along the 1,800 mark.

Xetra-Gold with sharp week-on-week loss

The Xetra-Gold price also declined within regular trading hours despite the weak euro. After €49.15 per gram last Friday morning, it climbed to 49.75 on Monday during the short rally induced by silver prices and headed back south to 47.95 yesterday afternoon. At the opening of trading today, Xetra-Gold should be trading around €48.35 per gram.

Gold prices will likely continue to be driven primarily by the development of the US dollar exchange rates. For those in the market to buy, this will make the precious metal somewhat cheaper, at least momentarily. This afternoon will see the publication of potentially trend setting US labour market data, and next week, the Chinese New Year celebrations are set to start, which should dampen demand for physical gold in Asia.

I wish all our readers a relaxing weekend.

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