Gold Slumps Below $1,200 as U.S. Dollar Index Surges

Author: Paul Ploumis
27 May 2015 Last updated at 03:52:51 GMT
(Kitco News) - Gold prices ended the U.S. day session solidly lower, fell below the key $1,200.00 level and hit a two-week low Tuesday. A strong rally in U.S. dollar index is a major bearish weight for the precious metals. Market place focus remains on the greenback, despite some developments recently that could be perceived as friendly for the safe-haven gold market. August Comex gold was last down $17.10 at $1,187.80 an ounce. July Comex silver was last down $0.306 at $16.745 an ounce.

The U.S. dollar has surged against its counterparts early this week, continuing a strong rally that started last week. The buck has appreciated in part due to safe-haven demand due to the Greek debt crisis. The dollar hit an eight-year high against the Japanese yen Tuesday and hit a one-month high against the Euro currency. The U.S. dollar index hit a one-month high Tuesday, following a technically very bullish weekly high close last Friday that gave the index a fresh boost of power to suggest the index can continue to trend sideways to higher in the near term. That’s not good news for the raw commodity sector.

Sharply lower crude oil prices Tuesday were the other “outside market” that also worked against the precious metals bulls.

Traders and investors in Europe and the U.S. came back from a long holiday weekend to news that Greece says it will run out of money before its next debt payment is due, unless a new deal is struck with its creditors soon. Greece and its lenders are negotiating new terms to extend Greece’s loan payments, but the lenders are demanding that Greece overhaul its economy. Reports say limited progress has been made in the talks. A European Central Bank official said uncertainty over the outcome of the Greek debt negotiations could destabilize the European Union’s financial markets. The Group of Seven industrial nations will meet in Germany at mid-week, to likely discuss the Greece matter, as well as other world economic and financial issues.

While the gold market is presently seeing little safe-haven demand from the Greece debt matter, that could change in a hurry if the situation with Greece and its debt burden deteriorates.

The U.S. dollar bulls got some more positive fundamental news in recent days when Federal Reserve officials sounded more hawkish on U.S. monetary policy. On Friday Federal Reserve Chair Janet Yellen said a U.S. interest rate hike “would be appropriate at some point this year.” And on Monday Fed Vice Chairman Stanley Fischer said the U.S. central bank will gradually raise interest rates in the next three or four years, to bring borrowing costs back to normal.

A hefty slate of U.S. economic data for released Tuesday was neutral to slightly upbeat, which also did not work in favor of the gold and silver market bulls.

The London P.M. fix is $1,185.40 versus the previous A.M. fixing of $1,194.00.

Courtesy: Kitco News