On Monday, the prices of gold jumped to its highest level in almost two weeks because of a weaker U.S. dollar and the dovish tone of Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole.
The dollar plunged near a two-year low and was on track for its fourth straightly monthly decline. A weaker dollar makes the bullion cheaper for investors who are using rival currencies.
In his address, Powell hinted that the central bank’s monetary policy strategy is to keep interest rates close to zero for possibly a few years even if the inflation rate rises. This favors the yellow metal because low-interest rates weigh on bond yields and the greenback and lift the demand for non-yielding assets such as gold.
Spot gold is currently trading at $1,958.45 per ounce as of 0801 GMT.
IG Markets’ analyst Kyle Rodda commented that the dollar suffered from the knock-effect of the Jackson Hole Symposium. He also suggested that the downward trend of the greenback might result in an upside momentum for the precious metal. Edward Meir, an ED&F Man Capital Markets analyst, added that the underlying fundamentals for gold remain the same and it might retest its old highs.
Meanwhile, a Reuters’ tally showed that the number of COVID-19 cases around the world surpassed the 25 million mark yesterday. The uncertainty surrounding the coronavirus crisis has lifted gold prices by 30% so far this year. But despite the negative economic impact of the pandemic, China’s factory activity improved slightly in August. Japan also reported an increase in factory output for the second consecutive month in July.
In physical trading, Indian gold dealers were forced to offer high discounts, the highest in five months, after the demand remained low despite a decline in domestic prices.
In a related development, market speculators lowered their bullish stance in COMEX gold contracts for the week that ended on August 25.