Gold buoyed as geopolitical tensions offset impact of stronger dollar

NEW YORK/LONDON — Gold prices edged higher on Monday as geopolitical tensions offset expectations of tighter US monetary policy and a stronger US dollar.

Spot gold was up 0.31% at $1,137.55 an ounce by 2:40 p.m. EST (1940 GMT), even as the dollar reversed earlier losses. It hit $1,122.35, its weakest since Feb. 2, on Thursday under pressure from a stronger dollar after hawkish rate forecasts from the Federal Reserve. The most active US gold futures for February delivery settled up $5.3, or 0.47%, at $1,142.70 per ounce.

“We are up on geopolitical tensions,” said Phillip Streible, senior commodities broker for RJO Futures in Chicago, noting the fatal shooting of a Russian ambassador in Turkey was supportive of bullion, considered a safe haven investment.

Even so, gold prices remained capped by expectations of more rate hikes to come. The Fed raised rates for the first time in a year last week and projected three more increases in 2017, up from the two projected in September.

“Coming at a time when investors are mindful of the stimulus effects of the new incoming US regime (this) is likely to be good for equity valuation and weigh on gold and risk-off assets, at least in the short term,” Mitsubishi Corp. Strategist Jonathan Butler said.

The greenback firmed against a basket of currencies after Federal Reserve Chair Janet Yellen said the US labor market has improved to its strongest in nearly a decade.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

High interest rates and a strong dollar “will weigh on gold” going forward, ETF Securities Analyst Martin Arnold said.

The benchmark 10-year US Treasury yield hit its highest since September 2014 on Thursday.

Holdings of SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund, fell 0.60% to 836.99 tons on Friday, down over 11% since November.

Hedge funds and money managers cut their net long position in COMEX gold contracts for the fifth straight week, taking it to a 10-month low in the week to Dec. 13, US Commodity Futures Trading Commission data showed on Friday.

Palladium was down 2.79% at $675.60 per ounce, spot silver was down 1% at $15.92 an ounce, while platinum fell 1.31% to $914.5 per ounce. —