Strong Dollar sets gold for worst monthly decline since September

Top Asian hubs saw firm demand for physical gold last week in the run-up to the Lunar New Year holiday, while buyers in India held off making purchases before the government announces its annual budget.

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New York: Gold prices fell for a fourth consecutive session on Monday and were set for their biggest monthly drop since last September, as the U.S. dollar strengthened ahead of key central bank meetings, making bullion more expensive for holders of other currencies.

Spot gold was down 0.2% at $1,788.41 per ounce, as of 0140 GMT, hovering near the previous session’s $1,779.20 – its lowest since Dec. 16. U.S. gold futures were up 0.1% at $1,788.20.

The U.S. Federal Reserve plans to raise interest rates in March on the assumption that the economy will largely steer clear of a fallout from the omicron coronavirus variant and keep growing at a healthy clip.

Although gold is considered a hedge against inflation, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

Japan’s factory output shrank for the first time in three months in December as a decline in machinery outweighed a small rise in car production, casting a cloud over the strength of the economic recovery.

Traders are on the lookout for policy decisions from Australian, UK, and European central bank meetings expected this week.

Top Asian hubs saw firm demand for physical gold last week in the run-up to the Lunar New Year holiday, while buyers in India held off making purchases before the government announces its annual budget.

Spot silver shed 0.3% to $22.36 an ounce, while platinum was up 0.1% at $1,008.27.

Palladium fell 0.5% to $2,364.49, but the auto-catalyst metal was set for its best monthly gain since February 2008, up about 25%.

The euro was at $1.1148, just off last Friday’s low of $1.1119, its weakest since June 2020. The Aussie dollar was at $0.6991, also languishing near Friday’s 18-month low, while sterling was at $1.34015, near the one-month low hit last week.

The greenback had its best week in seven months last week supported by investors seeking safety amid a sell-off in riskier assets and by analysts raising forecasts for U.S. interest rate hikes.

MSCI’s 50-country main world index is headed for its worst month since the start of the pandemic.

Market pricing now suggests a more than 90% chance of at least four rate hikes by the end of the year and a 67% chance of at least five.

“The USD ‘smiled’ again, drawing on a combination of rates repricing and much weaker risk sentiment,” said analysts at Barclays.

Looking forward, they said weak and volatile equities could support the dollar but the potential for further dollar gains based on rate hike expectations was limited.

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