SINGAPORE – Gold is set for a fifth straight monthly decline, the longest losing run in half a decade, as the dollar gets a twin boost from trade tensions and the Federal Reserve’s path for higher interest rates, while inflation remains stuck in hibernation and US equities notch record after record.
Bullion for immediate delivery, which was at $1 204.55/oz on Friday, has lost 1.6% in August, and the run of monthly declines is the longest since 2013. Prices hit a 19-month low on Aug. 16 and are down 7.5% this year, while the Bloomberg Dollar Spot Index has risen 1.6%.
The precious metal has been dumped as investors weigh prospects for further tightening by the Fed amid a robust US economy, with global holdings in gold-backed exchange-traded funds declining to the lowest level since November. The latest developments on the trade war front have further aided the dollar, with President Donald Trump expected to move ahead with tariffs on an additional $200-billion in Chinese imports as soon next week.
“The problem for gold bulls is that while inflation remains contained around the world and there’s no driver there for people to buy gold, that strengthening US dollar will be a key factor,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, said by phone. While there’s potential for trade wars to slow global growth, that’s not seen as a crisis and isn’t likely to spur haven buying, according to McCarthy.
While prices have stabilised near $1 200 this month, bets on declines are still piling up with money managers boosting their net-short position to a record for a fifth straight week. Analysts at Citigroup Global Markets have said nobody needs gold in a world where yields and equities are rising.
Fed Chairman Jerome Powell said this month that gradual rate increases are likely, and that with inflation still low he wasn’t worried about the economy overheating. The US central bank looks set to deliver four more hikes before pausing, according to UBS Group’s wealth management unit.
“In the short term, we’ll have further strength in the dollar,” said UBS’s Wayne Gordon, Singapore-based executive director for commodities and foreign exchange. Beyond that, gold may get a reprieve “when people start to look more further forward to the Fed effectively reaching what it sees as neutral, or slightly above neutral,” he said.