Gold prices pulled back on Tuesday, giving up some of last Friday’s sharp gains, as the US dollar strengthened.
Prices fell as low as $2,025 an ounce on Tuesday, compared with a high of $2,062 an ounce at the end of last week.
The catalyst for the latest drop was renewed strength in the US dollar, which made gains against other major currencies on Tuesday. Expectations for US interest rate cuts in March appear to have dampened, driving an increase in both the US dollar and Treasury yields.
A stronger dollar tends to make dollar-denominated assets like gold more expensive to buy in other currencies, denting demand, while a higher-for-longer scenario for interest rates is also bearish for precious metals as non-yielding assets.
The drop in gold may have also reflected a natural unwinding of the gains seen on Friday as the market reacted suddenly to news reports of US-led air strikes against Houthi-held positions in Yemen. The geopolitical element for gold is linked to the risk of any hostilities spilling over into a wider conflict that could have more significant effects on economic conditions.
Looking ahead, Wednesday will see the release of monthly US Retail Sales figures for December, which may provide further clues on the US economy and likely trajectory for interest rates.
Frank’s experience covering the commodities markets spans 22 years, with a particular specialism in metals, carbon and energy markets. He has worked as a senior editor for S&P Global Commodity Insights (formerly Platts) and before this, at ICIS-LOR, a part of Reed Business Information (Reed Elsevier), where he covered the petrochemicals markets from 2003 to 2005.
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