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Gold Sinks to Under $1,200 as Dow Touches 20,000

January 25, 2017 at 18:10 by Andrew Moran

Gold has dipped to under $1,200 once again in 2017 as the Dow Jones surged past 20,000. With US stock indexes surging to all-time highs, the Federal Reserve likely pulling the trigger on three rate hikes, and hopes that US President Donald Trump will proceed with growth-friendly spending policies, the yellow metal tumbled after reaching a 10-week high.

February gold futures declined $12.80, or 1.06%, to $1,198.00 per ounce at 16:42 GMT on Wednesday. After touching their highest levels since November 17, gold prices have since fallen to two-week lows. The next big headline for gold will be to see if it can post its fifth consecutive weekly gain this week.

Silver has also been impacted by the positive US news. February silver futures dipped $0.20, or 1.19%, to $16.98 an ounce.

Despite the significant losses, gold is still up around 6% year-to-date.

The precious metals were battered on Wednesday as US stock indexes posted record highs. The surge in these valuations will give the US central bank greater ammunition to proceed with its target of three increases to interest rates this year, something that investors had feared would not happen in 2017. A rising-rate environment is bad news for commodities like gold and silver because it lifts the opportunity cost and sends traders into yield-bearing assets.

Experts say that the only thing that is missing is further clarity from the US president pertaining to the US dollar. Last week, Trump noted that the greenback is “too high,” which makes it difficult for American firms to compete with China. It remains unknown if the US president will abandon the strong dollar policy that was adopted by the White House in the 1990s.

The US dollar posted losses on Wednesday. Contradictory remarks from cabinet members and executive action by Trump on oil pipeline projects had given a boost to US equities and affected the greenback. A strong dollar makes gold and silver too expensive for foreign investors to purchase.

Traders may still turn to gold as a safe haven asset because of the uncertainty surrounding the elections in Europe over the next couple of months. Trump’s aggressive infrastructure spending and expanding budget deficits may also give precious metals a lift in the coming months.

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