2012-09-21

Rebound in the U.S. Dollar

The price of gold declined on Thursday amid weakness in the commodities complex and a stronger U.S. dollar.  After rising to near a seven-month high of $1,781.72 per ounce yesterday, the spot gold price fell by $12.32, or 0.7%, to $1,759.04 this morning.  The yellow metal’s sell-off was driven in part by a modest rise in risk aversion across financial markets and a rebound in the U.S. Dollar Index, which advanced 0.7% to 79.595.

Analysts at Marex Spectron wrote in a note to clients that “The rise in gold and silver will be tempered by drops in the stock market and rises in the dollar, and if this continues then the upside is limited for the time being.”  However, the firm added that “support remains under the market and I still believe buying dips is the way forward in the longer term.”

On Wednesday the gold price was unable to build on its recent gains despite the Bank of Japan’s (BoJ) unexpected announcement of an expansion to its quantitative easing program.  The BoJ will increase its asset purchases by 10 trillion yen (¥) – approximately $125 billion – raising its total to ¥55 trillion.  The decision followed similar measures from earlier this month by the Federal Reserve and European Central Bank, as central banks across the globe have shown that they are in a race to debase their currencies to stimulate economic growth.

Commenting on the tepid movement in the price of gold yesterday, Saxo Bank vice president Ole Hansen contended that “The lack of follow-through following the BoJ announcement of additional stimulus yesterday seems to indicate that investors have what they need at this stage, and a correction might be required to attract additional demand…Physical demand looks lacklustre, so it is purely up to the investment community to drive this forward.”

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