Gold price jumps to highest since March 2014

Cutting it fine

On Tuesday, gold made the most of a weaker US dollar and expectations of an extended period of ultra-loose monetary policy in the US and negative interest rates around the globe, jumping the highest since March 2014.

Gold futures in New York for delivery in December, the most active contract, added over 1% to a midday high of $1,374.20. The December contract hit an intra-day high of $1,384.40 a month ago, but on a closing-level basis for the most active contract, gold settled at a near two-and-half year high on Monday according to FactSet data. Year to date the metal has gained 29.6% or more than $310 an ounce.

CHARTS: Gold price and the dollar – crushing it

Source: Capital Economics

CHARTS: Gold price and the dollar – crushing it

Source: Capital Economics

Weak GDP numbers in the US released last week has pushed rate hike expectations in the world’s largest economy towards the end of the year hurting government bond yields and weakening the greenback.

US Treasury yields and the gold price have a strong negative correlation and a stronger dollar has an even closer inverse relationship to commodity prices in general.

The US dollar index on Tuesday fell to levels last seen in June below 95 against the currencies of the country’s major trading partners. The dollar has weakened 2% over the past year after  briefly spending time above 100 in March and November last year. The last time the currency topped 100 for a sustained period was in the early 2000s.

Today’s level compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce.

Friday’s release of US payroll numbers would provide further indication of what the next move for the US Federal Reserve – and the gold price – would be.

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