Gold price testing lowest this year, dollar hits 1-mth high

Otmane El Rhazi from The Bullion Desk.

The gold price was still around four-month lows on Thursday morning and just above its lowest this year after hawkish comments from Federal Reserve chair Janet Yellen on the normalisation of US monetary policy.

Spot gold was last at $1,146.00/1,146.80 per ounce, down $2.20 on Wednesday’s close – in the previous session it came within $1 of its lowest this year at $1,143.50. Silver followed gold lower and is testing $15 again – it was last at $15.01/15.06, down five cents.

Positive US data in the previous session and hawkish comments from Yellen during her semi-annual testimony to Congress on monetary policy have weighed on the metal

Yellen confirmed that a tightening of monetary policy would still be appropriate this year assuming that the US economy develops as expected. The dollar has since strengthened to 1.0895 against the euro, its best in more than a month.

“The dollar strength is weighing on an already weak bullion market and, with gold prices testing the March low at $1,142.90 and not far off the November low at $1,131.60,” FastMarkets analyst William Adams said.

“Prices look oversold but the path of least resistance is to the downside,” he added. “There is room for short-covering but there is a lack of bullish catalysts – will these previous lows prompt a bounce?”

In Europe, the Greek parliament approved the reforms it needs to implement to secure the third bailout from international creditors last night, largely due to the support of opposition parties.

Several eurozone countries will now vote on the deal although the likelihood of Greece existing the bloc has dramatically diminished.

“The lower Grexit risk should prevent any noticeable recovery of the gold price,” Commerzbank said in a note. “On the other hand, we do not expect the gold price to fall significantly either.”

“After all, the Canadian central bank lowered interest rates yesterday, initiating yet another round in the devaluation race between currencies – which should benefit gold in its capacity as an alternative currency,” it added.

In equities, the Euro Stoxx, Dax and Cac-40 were last up nearly 1.5 percent; all Asian indices closed marginally in positive territory.

In European data, final consumer inflation of 0.2 percent was as expected as was the core figure at 0.8 percent. The trade balance of 21.2 billion euros fell just short of consensus.

Still to come today will be the minimum bid rate from the eurozone, alongside the corresponding press conference with ECB president Mario Draghi.

Weekly jobless claims and the Philly Fed manufacturing index are due form the US. Yellen is also due to continue her testimony.

Platinum was last down $5 at $1,009/1,014 per ounce and palladium was $2 lower at $635/640.

European car sales bounced back sharply – new vehicle sales in the first six months of the year rose 8.2 percent to 7.41 million from 6.85 million previously.

“Sentiment in the PGMs have been extremely weak; we wait to see if the strong EU vehicle sales data provides a rethink,” FastMarkets’ Adams added.

(Editing by Mark Shaw)

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