The prices of gold declined slightly on Wednesday as investors booked profits after the yellow metal reached an all-time high of $1,980.57 yesterday. The bullion was also impacted by the recovery of the U.S. dollar, though it remains just a little above a two-year low.
Spot gold is currently trading at $1,957.85 per ounce as of 0801 GMT.
DailyFx’s currency strategist Ilya Spivak said gold closely follows the movement of the dollar which halted its downward trend today. The dollar is considered a rival safe-haven and its weakness makes gold cheaper for investors using other currencies. Spivak expects the market to become more cautious as Federal Reserve gets close to announcing its interest rate decision.
The Fed will publish its decision today at 1800 GMT and it is not expected to make any changes to the interest rates. OANDA’s senior market analyst Jeffrey Halley thinks that the Fed will maintain its dovish stance that will be supportive of precious metals such as gold. Low-interest rates boost the demand for gold because it lowers the opportunity cost of holding the bullion. Also, it is considered as a hedge against currency debasement and inflation.
Meanwhile, the number of new COVID-19 cases in the U.S. continues to surge. Yesterday, six states including Arkansas, California, Florida, Montana, Oregon and Texas, reported one-day records for COVID-19 deaths. According to a Reuters’ tally, 1,300 people across the U.S. died yesterday because of the coronavirus.
The sharp increase in coronavirus cases and the intensifying tensions with China have lowered the possibility of a quick recovery for the American economy. The situation also drove capital inflows to safe-haven investments. The White House is working on another coronavirus aid but is struggling to reach a deal with Congress on a $1 trillion aid plan.
In a related development, the holdings of SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, rose by 0.7% to 1,243.21 tons yesterday.