The price of gold has taken a hit as the U.S. dollar continues to surge, reaching a nearly six-month low and falling below $1,900 an ounce on Wednesday.
The most actively traded gold contract, December gold GC00 (-1.06% GCZ23), was down $20.20 or 1.1% at $1,899.60 an ounce on Comex. This marks the first time since March 15 that gold has traded below the $1,900 level, according to FactSet data.
Despite the ongoing stock market sell-off, which has seen the S&P 500 index SPX on track for a drop of more than 5% this month, gold has failed to find support from investors seeking a haven.
The main factors contributing to this downward pressure on gold prices are the strength of the U.S. dollar and rising global bond yields. Fawad Razaqzada, market analyst at City Index and Forex.com, explains in a note that a stronger dollar makes commodities priced in dollars more expensive for users of other currencies. Additionally, higher bond yields increase the opportunity cost of holding nonyielding assets.
The ICE U.S. Dollar Index DXY, which measures the currency against a basket of six others, rose 0.3% on Wednesday to 106.55. This is its highest level since November 30.
Dollar Index Continues to Rise
The dollar index is set to extend its winning streak for an eleventh week, following ten consecutive weeks of gains. While there is no fresh news driving these latest gains, there is also no macroeconomic reason for the dollar rally to come to an end. The only factor that suggests a potential slowdown is the short-term outlook appearing somewhat overstretched.
Gold Dips Below $1,900
It comes as no surprise that gold has fallen below the $1,900-an-ounce threshold, according to market analyst Rupert Rowling at Kinesis Money. What is more striking, he argues, is that gold managed to hold up as long as it did. Looking at it from a macroeconomic standpoint, the price of gold still appears excessively high.
Institutional Buying Supports Gold
Gold has been propped up in recent months by institutional buying, particularly from central banks trying to diversify away from the dollar. This support is unlikely to vanish suddenly, indicating that gold will likely experience a gradual decline rather than a sudden collapse. However, the yellow metal's status as a safe haven asset may be revitalized in the near future due to growing concerns over property instability in China and the health of the world's second-largest economy.
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