Gold embracing dollar once more as haven demand fails to emerge

[LONDON] The dollar is dominating the gold market.

With markets showing relative calm in the face of Greece's debt crisis and equities near all-time highs, there's little demand for the safety of haven assets like gold, giving changes in the dollar more sway. The metal has moved in the opposite direction as the Bloomberg Dollar Spot Index every day except one this month.

Both assets have been stuck in a trading range since April as the Federal Reserve plots when is the right time to start raising interest rates. The back-and-forth debate has kept gold and the dollar moving inversely as each US economic report and Fed speech gets parsed for clues that may point to when rates will increase. Central bank policy makers start a two-day meeting on June 16.

"There is a big unknown at the moment and that is the Fed meeting on Wednesday, and no one wants to move until the macro headlines pass," Michael Gayed, the chief investment strategist who helps manage US$200 million at Pension Partners LLC in New York, said in a telephone interview. "The strength in the dollar is a headwind for gold."

Gold futures for August delivery fell 0.1 per cent to settle at US$1,179.20 an ounce at 1:41 pm on the Comex in New York. On Thursday, prices declined 0.5 per cent.

The Bloomberg Dollar Spot Index climbed as much as 0.6 per cent.

The 30-day correlation between gold and the dollar index was negative 0.63 on Friday, the lowest since December, according to data compiled by Bloomberg. A reading of 1 would signal the two moved in lockstep in the same direction, and minus 1 reflects opposite movements.

Fed officials, who meet for two days next week, aren't likely to raise rates before September, according to a Bloomberg survey of economists. They will issue new forecasts for the economy and the path of the federal funds rate, and Chair Janet Yellen will give a press conference after the meeting.

Silver futures for July delivery fell 0.8 per cent to US$15.825 an ounce, the first decline in three days. Prices lost 1 per cent this week.

Platinum and palladium also declined.

BLOOMBERG