Gold prices rise on safe-haven buying after tumbling previously to 4-month low
Spot gold rose on Tuesday, off the previous day’s near four-month lows, as a drop in equities drove safe-haven buying and the US dollar retreated.
Spot gold was up 0.23 per cent at US$1,216.79 per ounce and away from Monday’s US$1,204.45, its lowest since March 15. US gold futures for August delivery settled up US$1.50, or 0.12 per cent, at US$1,214.70 per ounce.
US stocks and the dollar reversed gains after US President Donald Trump’s eldest son released an email chain which mentioned a top Russian government prosecutor offering the Trump campaign damaging information about Democratic rival Hillary Clinton.
“The brief but sharp drop in equity markets caused safe-haven gold to bounce back this afternoon,” said Fawad Razaqzada, a market analyst at Forex.com.
The weaker currency makes dollar-denominated commodities less expensive for holders of other currencies, which could subdue demand.
The greenback fell after hitting a four-month high against the Japanese yen on the past fortnight’s 25-basis-point rise in 10-year US government bond yields.
Traders awaited a speech from US Federal Reserve Chair Janet Yellen later this week and any signs of tightening of monetary policy from the central bank.
Gold prices are down more than 6 per cent from a seven-month high near US$1,300 hit in June.
Perceptions that an era of ultra-cheap money is gradually ending have been reinforced by European Central Bank minutes showing policymakers are open to reducing monetary stimulus.
The Bank of Canada is expected to raise rates on Wednesday. Yellen is scheduled to deliver a semi-annual monetary policy testimony to lawmakers on Wednesday and Thursday.
Higher US interest rates and Treasury bond yields raise the opportunity cost of holding gold, which yields nothing and costs money to store and insure.
“Gold should recover from this latest pullback as the move higher in real rates is unlikely to be sustained and we see longer-term value around these levels,” UBS analysts said in a note.
On the technical front, support for gold comes in at US$1,200 followed by US$1,195, near the low on March 10. Upside resistance comes in at the 200-day moving average near US$1,230.
An investor retreat from gold can be seen in holdings of physically backed exchange-traded funds, which at 54.61 million ounces are down more than 1 per cent since June 14.