Gold steadies near US$4,000 as stronger dollar, rate outlook weigh

[SINGAPORE] Gold steadied near US$4,000 an ounce on Thursday (Jun 25) after falling through the threshold for the first time since November, weighed down by a resurgent US dollar and the prospect of higher interest rates.

Bullion was little changed, having dropped nearly 3 per cent in the previous session. A gauge of the US dollar has gained 0.8 per cent this week, making precious metals priced in the greenback more expensive for buyers in other currencies. Silver also steadied, after a drop of almost 7 per cent on Wednesday took it below US$60 an ounce for the first time since December.

Adding pressure to gold, Federal Reserve policymakers have signalled growing support for higher borrowing costs, with new chair Kevin Warsh adopting a hawkish tone at his first rate-setting meeting on Jun 17. Tighter monetary policy makes bullion less attractive relative to yield-bearing assets like Treasuries.

The recent decline has brought an end to a long-running bull run for gold. The metal has posted double-digit gains for each of the last three years, more than doubling in value as central banks, money managers and retail investors piled into the trade.

That rally ran out of steam in late January, shortly after the precious metal hit an all-time-high near US$5,600 an ounce.

By June, it had fallen more than 20 per cent below its last peak, the threshold that conventionally marks the start of a bear market. Chief among the factors that weighed on bullion’s performance was the outbreak of the US-Iran war, which raised energy prices and stoked inflation.

Another major driver for gold’s rally – the so-called debasement trade, whereby traders prefer assets like gold and Bitcoin over currencies vulnerable to fiscal excess – has also been losing momentum.

Massive investment tied to artificial intelligence and the US’ relatively favourable energy position have strengthened the dollar’s appeal compared with energy-importing economies in Europe and Asia.

The “cyclical US exceptionalism theme is overriding the structural debasement theme,” Nicky Shiels, head of metals strategy at trader and refiner MKS PAMP SA, said in a note.

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As gold has fallen, several major banks have cut their price forecasts in the last week. Though revised targets imply prices will gain from current levels, Wall Street analysts are markedly less bullish than before.

Goldman Sachs axed US$500 from a forecast that now sees bullion ending the year at US$4,900 an ounce, while Deutsche Bank cut its fourth-quarter estimate by 17 per cent.

Spot gold edged up 0.1 per cent to US$4,002.82 an ounce at 8.20 am in Singapore. Silver rose 0.3 per cent to US$57.61 an ounce. Platinum was little changed, while palladium rose modestly. The Bloomberg Dollar Spot Index was flat after gaining 0.3 per cent on Wednesday. BLOOMBERG