Gold: 'You're a Mean One, Mr. Greenback'

The U.S. dollar appears to be on a mission to spoil Christmas in Goldville as weakness in the precious metal persists while the greenback gains.

On Friday, global growth concerns stemming from China and Europe as well as more declines in the U.S. stock market couldn’t help steer investors away from the U.S. dollar, which has been continuing its upward trajectory for most of the year. The U.S. Dollar Index (DXY), in turn, gained 0.36 percent by the close of Friday’s session.


Gold won’t be helped further when the Federal Reserve is set to decide on the federal funds rate this Wednesday. The capital markets are expecting a fourth and final rate hike to end 2018 with the CME Group’s FedWatch Tool calculating a 74.9 percent chance of a rate hike.

With the dollar rising in conjunction with interest rates, Friday’s declines could certainly be a recurring theme for gold in the coming months.

“Gold’s depreciation on Friday continues to highlight how the yellow metal’s near-term outlook remains heavily influenced by the dollar’s performance,” said Lukman Otunuga, research analyst at FXTM, in a note.

However, if Fed Chairman Jerome Powell delivers a dovish post-rate decision presser with the media, gold and exchange-traded funds (ETFs) that focus on the precious metal could stand to benefit. ETFs to consider include the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and Aberdeen Standard Phys SwissGold Shr ETF (NYSEArca: SGOL).

Despite all the headwinds gold has had to face in 2018, some analysts feel it’s a prime opportunity to buy into the weakness.

“Faced with rising interest rates and new record highs in the stock market, gold has done remarkably well in 2018, especially as consumer demand weakened even as mining output sets a new all-time high,” said Adrian Ash, director of research at BullionVault. “Supporting the gold market all through 2018, the geopolitical backdrop is worsening again, keeping (exchange-traded fund) positions firm and catching any dips in the price with new buying.”

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