Gold and silver posted their biggest weekly losses since March, when the global onset of the coronavirus pandemic caused markets to panic.
The dollar won as concerns about the prospects for global economic growth reinforced the currency’s appeal as a safe haven, weakening demand for gold. Fears are growing that the rise in coronavirus cases, particularly in Europe, could lead to more national lockdowns, weakening prospects for recovery. Gold fell 4.6% this week, while silver slumped 15%.
“Both have succumbed to a long late sell-off and pressure from a strong general dollar index, which is on track for its biggest weekly gain in nearly six months,” said Edward Meir, analyst at ED&F Man Capital Markets in New York. in a note.
The rally in gold, which is often used as a hedge against inflation, has also weakened as the weakening outlook for the recovery undermines prospects for higher consumer prices. A number of Federal Reserve officials have said that the central bank alone cannot boost prices and that the economy would falter without further help. Lately, gold has fallen more abruptly than currency exchange rate developments would have led one to expect, said Carsten Fritsch of Commerzbank AG.
“The decrease in inflation concerns due to the increase in crown numbers could have something to do with this,” Fritsch said in a note.
Democrats in the US House of Representatives have begun drafting a stimulus proposal of approximately $ 2.4 trillion that may lead to possible negotiations with the White House and Senate Republicans. The bill could be approved by the House next week.
Spot gold fell 0.3% to close at $ 1,861.58 an ounce at 5pm in New York. Silver fell 1.1%. Platinum also fell in its worst week since March, while palladium had the biggest weekly drop since July.
The Bloomberg Dollar Spot Index rose 0.3% and posted its best week since April.
The fall in gold could prove temporary with greater uncertainty about the US presidential elections. Any additional conflict in the lead up to the vote should help lift the precious metal, according to RBC Capital Markets strategist Christopher Louney.
“The US election cycle and any potential transitions, as well as heightened geopolitical tensions, remain amid economic uncertainty,” he said in a note. “Recent movements open room for gold to rise more materially” in the next two quarters, he said.
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