Gold futures drop as dollar index rises

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26th May 2023 – (Chicago) Gold futures on the COMEX division of the New York Mercantile Exchange fell on Thursday, 27th May, as the U.S. dollar index rose. The most active gold contract for June delivery dropped $20.90, or 1.06 percent, to close at $1,943.70 per ounce.

Fitch Ratings Inc. announced on Wednesday, May 26, that it was considering downgrading the credit rating of the United States, which helped boost the value of the U.S. dollar. The news of a possible downgrade raised concerns about the country’s fiscal health and the strength of the U.S. economy.

A hawkish shift in tone by some U.S. Federal Reserve officials also influenced the market. Minutes from the Fed‘s May policy meeting showed that “some” officials believed that additional policy firming was “likely.” This suggested that the Fed may raise interest rates sooner than expected, which could boost the value of the U.S. dollar and put downward pressure on gold prices.

Furthermore, economic data released on Thursday further dampened gold. The U.S. Commerce Department reported that the U.S. gross domestic product (GDP), the broadest measure of economic output, increased at an annualised rate of 1.3 percent in the first quarter, up from an initial estimate of 1.1 percent reported last month. This indicates that the U.S. economy may be performing better than previously expected, which could lead to less demand for gold as a safe-haven asset.

The U.S. Labor Department also reported that the number of initial unemployment claims rose by 4,000 to 229,000 in the week ending May 20. This may have contributed to the drop in gold prices, as investors may see this as a sign of a recovering economy and shift their investments to riskier assets.

In addition to gold, silver for July delivery fell 33.00 cents, or 1.42 percent, to close at $22.91 per ounce. Platinum for July delivery also fell 3.20 dollars, or 0.31 percent, to close at $1,026.30 per ounce.

Overall, the drop in gold prices can be attributed to a combination of factors, including a stronger U.S. dollar, a possible downgrade in the credit rating of the U.S., a hawkish shift in tone by some Fed officials, and positive economic data that suggests a recovering economy. However, it is important to note that gold prices can be volatile and may fluctuate based on a variety of factors, such as geopolitical tensions, inflation, and changes in monetary policy.