Gold defies negative impact of dollar and yield strength
Gold remains a buy-on-dip market, defying the expected negative impact of the dollar and yield strength, experts say.
Gold's strong March rally culminated last week when the yellow metal briefly surged to a fresh record high at $2,221 per ounce after the US Federal Reserve stuck to its three rate cut projections for this year, only to suffer another mild round of profit-taking as the dollar continued higher. “Gold is heading for a March gain of around 7 per cent, while silver has managed a near 10 per cent rally after suffering mild setbacks during January and February when the dollar and US Treasury yields rose in response to traders adjusting inflation expectations to higher and lower rate cut projections,” Ole Hansen, head of commodity strategy, Saxo Bank, said in a note.
On Tuesday, spot gold added 0.33 per cent to $2,178.57 an ounce. US gold futures gained 0.36 per cent to $2,182.70 an ounce.
Overall, gold continues to defy the normal negative impact of the dollar and yield strength, both of which have risen this year. Instead, the metal has been supported by safe demand related to several geopolitical risks around the world, and not least, continued strong underlying support from central banks and retail buyers of physical gold and jewellery, especially from India and China. In addition, the early March break above $2,088 per ounce helped trigger a very aggressive buying response from technical and momentum-driven hedge funds. During the two weeks to March 12, managed money accounts bought 9.2 million ounces or 285 tonnes, an amount it took ETF investors more than seven months to sell, data showed. To put it into further perspective, central banks have, in the past two years, bought more than 1,000 tonnes, again highlighting the aggressive nature of the recent fund buying.
“In the short term, gold needs to hold key support levels to avoid a fresh round of profit-taking, but so far, the corrections seen have been shallow enough to prevent temporary price weakness through long liquidation,” Hansen said.
After hitting a fresh record high last week, gold suffered another mild round of consolidation, however, without challenging support at $2,146, followed by $2,132. Moves that happen for no apparent reason often deserve some respect, and today's rally back towards $2,200 is one of them, happening without any notable support from other markets, highlighting a continued strong buying-on-dip mentality in the market. “We maintain our 2024 forecast for gold to reach $2,300 and silver to $28, with the technical picture pointing even higher towards $2,500,” Hansen said.
In the short term, gold needs to hold key support levels to avoid a fresh round of profit-taking, but so far, the corrections seen have been shallow enough to prevent temporary price weakness.” Ole Hansen Head of commodity strategy, Saxo Bank