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Gold held overnight gains on Wednesday, but could struggle to sustain rallies with the US dollar close to four-year highs and outflows from bullion funds showing no signs of abating.
Holdings in SPDR Gold Trust, the world’s top gold-backed exchange-traded fund, fell 0.12 percent to 724.46 tonnes on Tuesday — a fresh six-year low. ‘
This is the fund’s sixth straight day of outflows and shows investor sentiment is bearish. The ETF is seen as a good reflection of market sentiment due to the size of its holdings.
“I see no reason for gold to rally with the dollar and equities so strong and an interest rate hike on the horizon,’ said a precious metals trader in Hong Kong.
“Gold is extremely sensitive to dollar-yen moves now and it should return to the downtrend soon.’’
Spot gold
Spot gold edged up 0.3 per cent to $1,168.30 an ounce by 0718 GMT, after gaining 1.2 per cent on Tuesday from a softer dollar.
The metal has been unable to make a convincing break from a 4-1/2 year low of $1,131.85 reached last weak and there is a strong resistance around $1,180 — the key technical level below which gold has been sold-off since Oct. 31.
“Gold appears stuck in a tight $1,131-$1,181 trading range and is likely to remain weak,’’ said HSBC analyst James Steel.
Alternative investment
Bullion is seen as an alternative investment to riskier assets such as equities during economic uncertainties. But optimism over the US economic recovery has boosted stocks and the dollar. The greenback is also getting a leg-up from a weaker yen, which is at a seven-year low against the dollar.
The Federal Reserve is also expected to raise interest rates sooner rather than later due to the recovery. The move is likely to add more pressure on gold, a non-interest-bearing asset. Gold producers are feeling the pinch of lower prices.
South Africa’s AngloGold Ashanti said it plans staff cuts through voluntary severances. Physical demand has shown signs of picking up.
Premiums in top consumer China were trading in a $2-$3 per ounce range over the global benchmark. Last week, Chinese prices were largely at a discount.
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