The prices of gold advanced today as the dollar pared back some of its recent gains.
Spot gold prices were last seen hovering near the $1700 price point while the trade-weighted US dollar index shed about a quarter percent. Despite the dollar pull back in the early day, the greenback is outperforming all of the major currencies in the week thus far.
According to Cameron Alexander, an analyst with metals consultancy GFMS, there is a tussle going on between investors’ need for cash and buying of safe-haven assets. He said the firmer U.S. dollar is pushing down gold prices. The greenback remains close to a two-week high against a basket of rival currencies. Alexander also predicted that a decline in stock prices will send investors and traders to safe-haven assets.
Some analysts expect gold prices to come under pressure in the long term. This is because the precious metal is used as an inflation hedge and lower prices of crude oil tend to increase deflationary pressures. But they believe that the bullion is still supported by widespread economic stimulus measures.
Today, Brent crude oil dropped to its lowest pricing since 1999. Last Monday it plunged into negative territory for the first time ever. The oil market continues to have problems with an oversupply of inventory and weak demand due to the coronavirus pandemic.
Meanwhile, the U.S. Senate yesterday approved a $484 billion coronavirus relief package. This is likely to benefit gold because it is generally considered as a hedge against currency debasement.
On the technical aspect of trading, Reuters’ market analyst Wang Tao said gold’s wave pattern suggests that spot gold prices may likely go down to $1,659.68 an ounce.
In a related development, the holdings of the largest gold-backed exchange-traded fund SPDR Gold Trust went up by 0.4% to 1,033.39 tons yesterday. This development reflects investors’ continued interest in the yellow metal.