Gold Sees No Benefit As The US Dollar Declines

Gold is flat in the morning session at 1133.80 seeing no reward in the decline of the US dollar. The greenback dipped 37 points to trade at 95.67. Silver dipped 49 points to 14.500 and platinum tumbled $10.90 but remained above $1000 at 1007.70. Gold struggled on Monday to recover from last week’s losses, even in the face of a softer dollar, amid concern that the Federal Reserve is on course to raise interest rates this year despite recent market turmoil.

Gold is still on track to end August higher after scaling a seven-week peak during the month as worries over a slowing Chinese economy sparked safe-haven bids. That safe-haven draws proved fleeting on growing signs of a near-term increase in US interest rates. The US dollar tumbled by 37 points to 95.77 in the Asian session.

Jackson Hole got a bit less press than years passed when Mr. Bernanke attended and this year Janet Yellen did not make an appearance, but Fed members managed to keep in the headlines. Fed Vice Chairman Stanley Fischer, speaking at the central bank’s conference in Jackson Hole, Wyoming, on Friday had said recent volatility in global markets could ease and possibly pave the way for a rate hike.

“We think gold will likely come under further pressure as we near the Fed decision, as investors coalesce around the notion that the central bank will indeed move’’ and lift interest rates, said INTL FCStone analyst Edward Meir.

Last week as China’s economic problems stress global markets gold bulls piled into the metal in hopes that the turmoil sweeping financial markets would finally help revive prices. Instead of a rally, futures in New York fell for four straight sessions even as global equities plunged to a two-year low. Rather than providing a refuge from the meltdown, gold’s volatility rose right along with a measure of equity turbulence, diminishing its appeal as a haven. As stocks started to recover, the metal kept falling because of reports that signaled gains for the US economy.

It’s been a tough two years for investors in gold, which first fell into a bear market in April 2013. More than $52 billion has been wiped from the value of physical bullion funds since then. Money managers last week raised their net-long position to the highest since June just before futures capped the worst slump in a month. Stubbornly low inflation along with the prospect of tighter US monetary policy has kept a lid on the metal, which doesn’t pay interest or offer returns, unlike competing assets.

Speculators more than tripled their net-bullish position to 44,271 futures and option contracts in the week ended Aug. 25, according to Commodity Futures Trading Commission data released three days later. Long holdings rose for a third straight week, the longest run since January.

The Federal Reserve will probably push ahead to raise interest rates this year even after China’s surprise yuan devaluation this month that triggered global growth concerns and a selloff in equities, RBC Capital Markets’ Stephen Walker said in an Aug. 23 report. Walker, the most-accurate gold forecaster last quarter in rankings compiled by Bloomberg, expects prices to remain weak in 2015 and cut his forecast for the second half of this year by 13% to $1,125.

Industrial metals saw no benefit in the drop of the US dollar in the morning session. Copper tumbled by 18 points to trade at 2.328. Last week’s turmoil weighed heavily on the orange metal and the huge stimulus package injected by the Chinese did little to help the metal demand. Copper used to be considered one of the relatively bright spots in the recent downturn of commodity prices. But now it is becoming yet another victim of China’s slowing economy, and the future looks bleak.

There was always this belief that the deceleration in the Chinese manufacturing sector was going to not just stabilize, but there was this hope that we would see a modest reacceleration. Markets are coming to realize that those expectations were falsely held. Copper, like other commodities, has been on a decline since 2011. This year, the red metal is down 20 per cent.