Gold Tumbles 5% As Dollar Surge Wrecks Commodities

Gold prices tumbled almost 5% to head back to the mid-$1,700 levels last seen in April as a surging dollar wrecked the prices of commodities priced in the greenback.

Front-month gold futures on New York’s Comex settled down $86.60, or 4.7%, at $1,774.80 per ounce. The session bottom was $1,768, a low not seen since April 30.

The spot price gold, reflective of real-time trades in bullion, was down $30.61, or 1.7%, at $1,781.04 by 2:25 PM ET (18:25 GMT), touching a six-week low of $1,767.34 earlier.

Traders and fund managers sometimes decide on the direction for gold by looking at the spot price — which reflects bullion for prompt delivery — instead of futures.

Commodities from gold to oil tumbled after the Dollar Index rose toward the 92 level, rallying for a third day in row, with Thursday’s run-up fired by expectations that the Federal Reserve will raise interest rates at least twice by end of 2023 to 0.6% from current levels of zero to 0.25%.

The Fed also signaled at the end of its monthly policy meeting on Wednesday that it was looking out for data on when to start tapering its monthly asset purchase of $120 billion.

The central bank has been buying at least $80 billion in Treasury bonds and $40 billion in mortgage bonds to support credit markets and the economy since the COVID-19 outbreak last year.

“The Fed’s taper tantrum trade is hitting gold the hardest right now and could last a couple more sessions,” said Ed Moya, analyst at online broker OANDA, observed.

Moya observed that gold did not do a good job of defending its $1,800 level and momentum selling had since taken it 38% below the $1,919.20 high made at the beginning of June.

Gold looks like a falling knife but eventually the longer-term prospects will attract buyers,” he said. “Long-term bets on gold could start to emerge closer to the $1750 level, but some might wait and see if one last thrust lower eyes the $1,675 level.” Investing.com

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