gold strong dollar

Power Struggle — Gold Weakens as Dollar Gains

Gold trading was down at the close of Monday, Feb. 20, 2017, in the wake of interest rate increase rumors and the strengthening dollar. Gold defied the odds earlier this month with price increases alongside a stronger dollar, but that streak has ended. Spot gold and gold futures were down yesterday, at approximately a 0.4% decline each.

Strong Dollar Will Hurt Gold

In the mid- and long-term, gold and the dollar cannot prosper in tandem. As one improves, the other will decline. Gold has seen unexpected growth since November 2016, but now its daily performance is beginning to slow as a strong dollar emerges.

The big story in gold right now is the expectation of rate increases coming from the Federal Reserve. While no specific date or percentage increase has been officially announced, investors know it will be coming this year. Odds are, March will be the first round of rate hikes.

As the market speculates when rates will jump, they’re turning more to treasury bonds in the hope of capturing a gain. More money flowing to treasury bonds causes the dollar value to rise and leaves less money for gold investments.

Will This Trend Last?

Right now, anticipation of future changes is causing investors to move away from gold. Will the trend last? The question can be answered once the Fed makes official announcements of rate increases. Jerome Powell, Federal Board Governor, is set to speak tomorrow where he will release minutes from the last meeting to the public.

Even with rate increases, investors are not likely to completely rid their portfolios of gold. The political arena, both domestic and international, remain uncertain and could continue to drive investors to hold on to safe haven assets.

Looking Ahead to March

Gold has seen a decline in the last 24 hours, coming down from its three month high on Feb. 8, 2017. No one is certain of rate increases for March, although the Fed has promised multiple rate increases for this year. The Fed is not the only deciding factor in gold success, however. The Fed decisions will be a key player in the market, as will White House decisions on trade and fiscal policy. Investors are advised to keep their finger on the pulse of both in the coming months.

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