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Updated 13:46 11/05/21

Gold subdued as US Dollar’s good run continues

By Liam Sheasby, News Editor

28 Jun 2018

The price of gold is at a 2018 low as the US Dollar continues to outperform other major currencies. An ounce of gold now costs $1,253 – a drop of $22.25 over the past six months and at 3% it’s the largest monthly loss since September last year.

The Dollar is benefitting from increased investor interest in the US economy after poor growth stats emerged from the UK and the Eurozone in the past few months. Since the middle of April, the Dollar has made substantial gains against the Pound, Euro, and Yuan, and analysts are predicting further gains at the expense of these currencies should the ongoing trade disputes between the US, China and EU continue.

In the UK and Europe, gold prices have also been pushed down - partially as a result of the Dollar’s strength – and today sit at £956.67 / €1,081.64 respectively. The losses haven’t been quite as significant due to the decreased value of Sterling and the Euro, which has limited gold’s fall, but they are surprising: gold is usually a go-to safe haven for investors. The recent peak price of £982 per ounce reflected their interest in gold bullion, but the reluctance to stick with gold suggests uncertainty.

Some investors have been turning away from gold temporarily (hence the £30 price drop) to diversify their holdings into US Treasury bonds while the Dollar is strong and their yields are still attractive. As bonds are bought up, the attractive yield rate is reduced until the yield benefits the US Treasury rather than investors. At that point – which will arrive relatively soon – investors will return to gold as the only other truly viable safe haven investment, pushing prices back up once again. The hesitance of investors is likely a ‘wait and see’ tactic ahead of the planned trade tariffs due to be introduced by the US and China on July 6th.

It’s a stark contrast to the deliberately weaker US Dollar that the markets were getting used to at the end of 2017 and into 2018, but the disappointing growth figures of 0.1% in the UK and 0.4% in the EU for the first quarter of this year have dissuaded investors from committing too heavily to the European markets – especially with the Brexit negotiations still ongoing.

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