Lower Dollar, Stocks Boost Demand for Gold

June Comex Gold futures rallied on Wednesday, finishing at $1275.00, up $10.20 or +0.81%. Traders were reacting to the lower U.S. Dollar and weaker equity markets.

Gold closed lower on Tuesday, but found support at technical price levels, leading to today’s early strength. A break in the U.S. Dollar Index after a five-day rally provided most of the support. Gold tends to rally when the dollar breaks because it is a dollar-denominated commodity. This often leads to increased demand from foreign investors.

Appetite for gold has eased since the market neared the psychological $1300.00 level earlier in the month. The selling was strong enough to drive the futures contract into $1258.30 on Tuesday, its lowest level since April 28.

To some, gold prices are likely to remain range bound over the near-term. The current situation is favorable to gold but it is not overwhelmingly favorable. The U.S. economy appears to be in good shape overall, which is helping to limit movement to the upside. This is also encouraging investors to lighten up their long positions on rallies.

Throughout the year, gold has been supported largely by expectations that the next U.S. interest rate increase will only happen later in the year as Fed policymakers take note of challenging global economic conditions.

Traders are citing three reasons why gold prices could be limited to the upside. These include the possibility of an earlier-than-expected rate hike by the Fed, limited room to the downside for the U.S. Dollar and limited room for China to drive currency strength to contribute to dollar weakness.

July Platinum futures are also trading better at $1066.30, up $17.00 or +1.62%. Longer-term traders should note that the rise of the electric vehicle market over the next decade or two will impact the platinum market significantly, according to a new report from Bloomberg.

The move towards electric vehicles, and away from vehicles that feature exhaust systems at all, will presumably put a big dent in demand. As it stands, roughly half of the platinum sold annually around the world is sold to the auto industry.

July Comex Silver prices followed gold higher after a six-day setback. The market finished at $17.35, up 0.258 or +1.51%. June Palladium, another auto industry metal, mirrored the rally in platinum, posting a gain of $9.10 or +1.54%, to finish at $601.30.