Gold Drops as USD Gains Upper Hand

Gold futures extended last year’s decline as the dollar climbed to the highest in more than five years, curbing demand for the metal as a protection of wealth.

The U.S. currency climbed versus all its 16 major peers in 2014 and extended those gains today. European Central Bank President Mario Draghi said he can’t exclude the risk of deflation in the currency bloc and signaled that the likelihood of large-scale quantitative easing is increasing, according to an interview with German newspaper Handelsblatt.

“The stronger dollar is clearly a negative,” Nic Brown, the head of commodities research at Natixis SA in London, said by phone. “We have the potential for further dollar strength as the market is looking for the Fed to start hiking rates mid-year and as other central banks continue to expand balance sheets.”

Gold for February delivery fell 1.2 percent to $1,169.40 an ounce by 8:35 a.m. on the Comex in New York. Prices reached the lowest since Dec. 1 and are set for a third week of losses. The metal for immediate delivery slipped 0.9 percent to $1,171.08 in London, according to Bloomberg generic pricing.

Trading volume was 42 percent below the 100-day average for this time of day, data compiled by Bloomberg show. In a Bloomberg survey of nine traders and analysts, seven were bullish on prices for next week.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza