Gold prices fell for the fourth consecutive session on Monday as the U.S. dollar continues to strengthen. The dollar index stood at 90.528 after reaching a one-month high of 90.677 yesterday. The strong greenback makes the yellow metal more expensive for investors using rival currencies. Another factor that weighs on the bullion is the possibility that the Federal Reserve would taper its economic support measures.
Spot gold is currently trading at $1,859.35 per ounce as of 0853 GMT.
Ilya Spivak, a currency strategist at DailyFX, noted that the recent decline in gold prices reflects the Feds’ anticipated tapering of quantitative easing. He said the bullion has an immediate support price level at $1,850. If it breaks within the next 24 hours, gold could drop to $1,800.
Market participants are monitoring the Feds’ policy meeting later today. The central bank is expected to keep the benchmark interest rate near zero. Some analysts also expect the Feds to begin the discussion on scaling back its massive monthly bond-buying program.
The Commerce Department reported yesterday that U.S. retail sales dropped by 1.3% in May. It suggests that American consumers are starting to shift more of their spending to services as COVID-19 restrictions are lifted, and the economy reopens. More than half of eligible Americans have been vaccinated, which boosts the demand for air travel and entertainment services.
In a separate report, the Labor Department said the producer price index increased by 0.8% in May. It rose 6.6% year-over-year, the highest gain since November 2010.
The recent spike in consumer prices raised concerns about higher inflation rates. But Feds Chair Jerome Powell repeatedly assured the higher inflation would be transitory.
Meanwhile, Metals Focus predicted that gold demand from central banks and jewels would rebound in 2021. However, it will continue to be below pre-pandemic levels. The metals research consultancy said exchange-traded funds would shrink sharply since large investors went back to riskier assets as COVID-19 vaccines were deployed and the global economy recovers. It also predicted a record increase in gold supply from mines this year. The tailwind for gold will be the threat of inflation that would erode currencies and asset values.