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Stronger Dollar Knocks Gold Lower

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Stronger Dollar Knocks Gold Lower

balance of gold and dollar

A modest rally for the U.S. dollar sapped some of the momentum from the precious metals on Tuesday morning. Spot gold fell $7 (-0.55%) to $1,312/oz while the silver price gave back two-thirds of a percentage point (-11ยข) to fall below $17 an ounce. Platinum was mostly unchanged at $970/oz but palladium rallied above $1,100/oz, a new all-time high.

The pullback for gold was due primarily to the stronger dollar. The USD rose about 0.25% on the DXY index to a reading of 92.6. Although the greenback posted gains against the euro and pound, it actually fell against the Japanese yen. This was due to the Bank of Japan announcing it would be cutting its purchases of long-term government bonds that have maturities between 10 and 25 years. This would be the first time in over a year that the BOJ reduced its QE purchases.

This reinforces the trend of central banks tightening monetary policy in 2018. Yesterday, both San Francisco Fed President John Williams and Atlanta Fed President Ralph Bostic confirmed their view that the Federal Reserve will continue to raise interest rates at a steady pace this year. Last week, Cleveland Fed President Loretta Mester even suggested there should be four rate hikes in 2018. (Three hikes are expected.) Minneapolis Fed President Neel Kashkari will be speaking later this morning. Other central banks around the world are likely to follow the Fed's lead in raising interest rates. Gold has actually outperformed all other major asset sectors since December's rate hike. 10-year Treasurys fell sharply, sending the yield up to 2.50%.

Wall Street inched about 0.2% higher this morning after a mixed performance on Monday. The tech-heavy Nasdaq index lagged behind as the annual technology expo known as CES got off to a rocky start in Las Vegas. Recently uncovered security vulnerabilities have been a hot topic of discussion at the yearly showcase of new gadgets and electronics. In general, however, most analysts are anticipating more good news for stocks to begin the new year. Shares in Europe remain at their highest in over two years after five straight winning sessions for equities in the eurozone. Stocks also closed higher across the Asia-Pacific region. Commodities got a boost despite the firmer U.S. dollar as WTI crude futures added 0.6% to move back above $62 per barrel.

In international news, North Korea is apparently making arrangements to participate in next month's Winter Olympics. The games are being hosted by South Korea. The Olympics have prompted the first high-level talks between the two countries in more than two years, perhaps easing tensions on the Korean peninsula. As an act of goodwill, the United States and South Korean forces have agreed to postpone military exercises until after the Olympics are over.

Elsewhere, anxieties are rising in the Middle East after reports that Israeli forces may have attacked the Syrian army overnight.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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