The gold price held onto the gains made late in the pre-weekend session on Monday, with a relatively weaker dollar providing some upward impetus to the precious metals complex.
Spot gold was last up $3.30 on the previous session at $1,101.50/1,102.30 per ounce, having made a late rally on Friday in the face of a weakening dollar and end-of-week short covering.
Today, that tone appears to have continued with the metal hitting heights of $1,105.10 per ounce around the European open, against a dollar once again looking weaker at 1.1073 against the euro. Earlier, the dollar struck its lowest in two weeks at 1.1112.
“The market is running very short and these sorts of rallies are to be expected at the moment,” Marex Spectron’s David Govett said. “I feel that the downside for the time being is overdone and would not be surprised to see prices rally up a bit over the next few days. However, as always direction will be dictated by the dollar and to a degree the stock markets as well,” he added.
This morning, European markets have opened in negative territory, following heavy losses in Asian indices earlier in the session.
“The weakness in Asian stock markets is starting to bring about a feeling that a US rate rise may not be imminent and this is causing the dollar pull back,” Govett added.
The US FOMC is due to meet tomorrow and Wednesday, alongside the corresponding press conference which will be scrutinised for clues as to when the normalisation of monetary policy will begin.
Higher US interest rates will likely spell bad news for the gold market as investors would seek more yield-baring assets such as bonds.
The net long fund position (NLFP) in gold fell sharply by 19,545 contracts or 40 percent to 28,279 from 47,824 contracts in the week ending July 21, according to the latest CFTC statistics. Over the same period, gold prices sold off by 4.59 percent.
The decrease in the net length for the fourth consecutive week was heavily driven by the build-up of short positions (+16,251 contracts), which was further reinforced by some long liquidation (-3,294 contracts). The net length is down about 76 percent in the year-to-date.
In other metals, silver was last up seven cents at $14.67/14.72 per ounce, while platinum was down $4 at $979/984. Palladium, meanwhile, was unchanged at $620/625.
In data, the German IFO business climate bettered expectations at 108.0, while eurozone M3 money supply at five percent was as expected. Later today, the US will release its durable goods orders data.
(Additional reporting by Boris Mikanikrezai, editing by Martin Hayes)
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