A soaring U.S. dollar is taking a toll on gold, with the yellow metal slumping Wednesday to its lowest close in more than six months.
December gold
GC00,
GCZ23,
the most actively traded contract, dropped $28.90, or 1.5%, toclose at $1,890.90 an ounce on Comex — its lowest close since March 10, according to Dow Jones Market Data and its biggest one-day percentage loss since a 1.9% drop on April 14.
Gold has dropped 3.8% in September, failing to find support from its traditional role as haven for investors despite a continued selloff in stocks that has the S&P 500 index
SPX
on track for a drop of more than 5% this month.
Blame a strong U.S. dollar and rising global bond yields, said Fawad Razaqzada, market analyst at City Index and Forex.com, in a note. A stronger greenback is often seen as a headwind to commodities priced in dollars, making them more expensive to users of other currencies. Higher bond yields, meanwhile, raise the opportunity cost of holding nonyielding assets.
See: Why a surging U.S. dollar is about to become a problem for stock-market bulls
The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six others, rose 0.4% Wednesday to trade near 106.70, after hitting its highest intraday level since Nov. 30.
“After rising for 10 consecutive weeks, the dollar index is on course to add one more weekly gain on top of that this week. There’s no fresh news behind its latest gains. Yet there has also been no macro reason for the dollar rally to end, apart from the fact it is getting a bit overstretched in the short-term outlook,” Razaqzada said.
It isn’t a surprise that gold has fallen below the $1,900-an-ounce threshold, said Rupert Rowling, market analyst at Kinesis Money. It’s more remarkable that gold held up as long as it did, he argued in a Wednesday note.
“It will be interesting to note gold’s reaction over the coming days as from a purely macroeconomic perspective the price still looks overly high,” he wrote. “The main element that has kept gold supported in recent months has been the strength of institutional buying, particularly from central banks seeking to diversify away from the dollar.”
That support is unlikely to “suddenly disappear,” which points to a “slow and gradual” decline for gold rather than a sudden collapse, he said. And the yellow metal’s haven appeal may yet be revived in the near term as jitters grow over property turmoil in China and the health of the world’s second-largest economy.
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