Gold glitters while the dollar drags; stocks take a breather

The gold price touched its highest since early November, driven up by a weaker dollar, while global equities pulled back from last week’s record peaks

Gold prices rallied sharply, closing in on a near-4 percent gain this month, as the dollar softened and global stocks took a breather from their recent record-breaking rallies, while oil held steady.

Gold edged up by 0.1 percent, to around $1,515 an ounce, its highest since Nov 1, boosted by the weakness in the US dollar, which fell against a basket of major currencies.

The gold price has gained nearly 19 percent this year, having risen to its highest since mid-2013. A heady combination of risk aversion, stemming from uncertainty over the US/China trade war, along with a loosening in monetary policy around the world, has drawn in billions of dollars in investment.

“Gold ’s latest surge is strictly happening because the dollar is weakening, and expectations are growing the greenback will continue to fall further in 2020,” said analysts at MarketPulse.

When the US Federal Reserve lowers interest rates, it becomes more attractive for investors to hold gold, rather than other yield-bearing assets. This year, the Fed went from signalling that more rate hikes were on the cards, to doing a 180-degree shift and cutting rates, thereby delivering gold an unexpected lease of life.

Based on flows into and out of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund and a good gauge of investor appetite for bullion, investors have bought a net 110 tonnes of gold this year, compared with a net 100-tonne outflow in 2018.

Meanwhile, global equities eased back from their recent peaks, with stocks in Wall Street and Europe edging lower on the day.

In London, the FTSE 100 closed down 0.8 percent on the day at 7,587.05 points, while Frankfurt’s DAX finished down 0.7 percent at 13,249.01 points. The Stoxx 50 index of eurozone blue-chip stocks closed down 0.9 percent at 3,748.47 points.

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In other commodity markets, the oil price held steady around three-month highs just below $69 a barrel, showing little response to US air strikes in Iraq and Syria, as reported by Reuters.

Crude oil futures have risen by around 30 percent this year, largely thanks to a promise by some of the world’s biggest oil producers to voluntarily curtail output in order to prevent a big build-up of surplus fuel. However, caution over the damage to global growth from US/China trade tensions has kept the price from straying above $70 a barrel.

“Despite today’s subdued price action, that may continue until after traders come back in full force after the New Year’s holiday, the market has been bullish in December,” said James Hyerczyk, an analyst with FXEmpire.

The dollar index fell by 0.2 percent to 96.78, bringing its losses for December to nearly 1.7 percent. The euro rose by 0.2 percent to $1.120, while the pound was up 0.3 percent on the day at $1.3114.

Sterling has been one of the major gainers against the dollar this month, having gained ahead of a UK general election in which Prime Minister Boris Johnson’s Conservative party won a decisive majority and vowed to push the Brexit process ahead, following more than three years of political stalemate.

On the cryptocurrency front, the mood was less buoyant, with Bitcoin down around 1.7 percent on the day at $7,282, Ethereum down 0.6 percent at $131.26 and Litecoin down 1.6 percent at $42.33. Bitcoin is has doubled in value this year, making it the top performing major asset of 2019.

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