Gold Weakens against U.S. Dollar

Gold fell to start this week from previous week’s levels, which were the highest price levels fo rthe precious metal in the past 15 weeks, according to a Reuters report.

The gold price drop, compared to the U.S. dollar, comes in the wake of a weaker-than-expected payroll data report last Friday and a statement by the San Francisco Fed President John Williams on Saturday that the Federal Reserve will issue three interest rate hikes during 2018. The U.S. economy rose significantly during 2017 and is not showing any signs of slowing down.

Moreover, the tax cut legislation passed last month could only fuel the current economic growth, which could lead the Fed to raise interest rates more frequently or in higher increments. Higher interest rates often mean higher return on investments. Therefore, while gold investments are good hedges against inflation and potential market downturns, holding bullion of precious metals that do not pay interest becomes less advantageous when interest rates are high or rising.

Therefore, if the current economic expansion continues, expect a flight of assets away from gold and other precious metals and into interest-bearing investment vehicles. This would put additional downward pressure on gold prices and most likely lead to the appreciation of the U.S. dollar and other major currencies.

As of 2:30 PM EST on January 8, 2018, the spot price was $1,318.00 and February 2018 gold futures on the U.S. Comex were $1,319.60, down 0.2% (-$2.70 an ounce). However, some analysts view the current gold price pullback as a temporary move – which could go down a little further – before gold price trends higher again.

Afshin Nabavi, head of Physical Sales at MKS (Switzerland) SA, said, “This is just a correction, with the market back in full swing today.” Nabavi added that “it would be healthy to see a further correction before testing $1,325.”

Additionally, the spot price for silver was marginally lower at $17.09 than its six-week high of $17.29 from last Friday. Platinum’s price rose slightly on Monday (+2.75 or +0.28%) to 977.25 and palladium soared $9.00, or 0.83%, to $1,096 as of 3:30 p.m. EST.