Gold futures rose to a fresh record high overnight Tuesday before profit taking set in as the U.S. dollar stabilized after a sharp decline this month, while investors wait for the outcome of the Federal Reserve’s policy meeting on Wednesday.
Overall weakness in the U.S. dollar, “low-to-negative U.S. real yields, rising inflationary pressures, the possibility of global stagflation and the slippery market conditions remain supportive of a strong gold in the medium, long run,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a recent note.
“However, the rapid surge in gold prices also increases the risk of swift profit taking and a sharp downside correction,” she said, noting that gold rallied more than $500 an ounce since March. “There is room for a decent retracement.”
August gold
GC00,
GCQ20,
was up $9.90, or 0.5%, at $1,940.90 an ounce. It traded as high as $1,974.70 to top the intraday record set on Monday, but it also traded as low as $1,900.20.
The moves came as the ICE U.S. Dollar Index
DXY,
was little changed at 93.64, following a recent drop to a two-year low, and it is down by 0.8% week to date. Weakness in the dollar can provide support for dollar-denominated commodities.
Silver futures also tapped a seven year, intraday high, at $26.275 an ounce then eased back—after the most-active contract settled Monday at its highest since August 2013. In Tuesday dealings, September
SIU20,
fell by 11 cents, or 0.4% to $24.395 an ounce.
“Fundamentally nothing has changed, but [gold] prices were getting extremely overbought as they rose sharply in a short space of time,” said Fawad Razaqzada, market analyst with ThinkMarkets.
In the first half of this year, China’s gold consumption fell 38% year-on-year, the China Gold Association said. That news that may have contributed to some early weakness in prices for the metal on Tuesday.
Gold still has stormed higher over the last week, and gained more than 25% this year.
The rollout of the U.S. Senate Republican $1 trillion stimulus plan added to concerns about monetary financing of government spending, with the Federal Reserve on Tuesday starting its two-day interest-rate-setting meeting. The gains for gold also come amid the tense relationship between the U.S. and China.
Looking at the broader picture, analysts at BCA Research say the dollar’s weakness is just one factor behind gold’s rise, pointing out gold has climbed versus a host of currencies.
“The collapse in real yields has been the link between easy policy and gold. As central banks inject liquidity, real rates decline and the opportunity cost of holding gold recedes. Central banks remain successful in their easing attempt. Even if nominal yields are flat or slightly up, inflation expectations continue to rise and real yields to fall,” they said in a note to clients.
They said “gold will remain bid until Treasury yields
TMUBMUSD10Y,
start taking off from their 0.6% readings.”
Among other metals on Comex Tuesday, September copper
HGU20,
rose 0.7% to $2.9175 a pound. October platinum
PLV20,
tacked on 1.5% to $981.10 an ounce and September palladium
PAU20,
was little changed at $2,369.50 an ounce.
“Gold had a good shot at the number one main precious metal, but palladium did not stand still and is giving gold a good run for money for the top spot,” said R. Michael Jones, chief executive officer of Platinum Group Metals Ltd.
PLG,
,
noting that palladium has climbed from around $ 1,900 on July 10.
“It is interesting that both metals are precious and running up as fears of inflation circulate,” he told MarketWatch Monday. “However, gold and palladium are very different as gold is thought of as a safe haven form of money and palladium is used in the tail pipes of cars as a catalytic converter.”
“Personal transport is super important in these times and car sales are coming back fast—driving demand for palladium,” he said.