Gold prices hit a four-month peak on Monday as the U.S. dollar index slumped to its lowest in three years but analysts warned the greenback’s decline could be short-lived as it was not driven by fundamentals.
Spot gold was up 0.3 percent at $1,342.11 an ounce by 1045 GMT after touching its strongest since Sept. 8 at $1,344.44. The precious metal rose for a fifth straight week last week, gaining 1.4 percent. U.S. gold futures were up 0.6 percent at $1,343.20 an ounce.
“The weakness in the dollar is not justified by fundamentals. It’s a little bit weird considering the divergence in monetary policy should play in favour of a stronger dollar,” Capital Economics analyst Simona Gambarini said.
She said the U.S. Federal Reserve is widely expected to raise interest rates, which would favour a stronger dollar, while the European Central Bank should keep rates on hold.
The dollar index was down 0.2 percent at 90.474, having reached its weakest since January 2015 at 90.421.
A lower greenback makes dollar-denominated assets such as gold cheaper for holders of other currencies, while higher rates could dent demand for non-interest-paying gold.
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