Gold prices posted a slight decline on Monday, holding above $1,230 an ounce for a third straight session as traders eyed some weakness in the U.S. dollar a day ahead of the closely watched midterm elections.
“Stepping back from today’s price action, what is most interesting for gold is how well it has held its ground despite a significant rally in the U.S. Dollar Index in recent weeks,” Michael Armbruster, managing partner at Altavest, told MarketWatch. “When it comes to gold, it’s easy to be lulled into a sense of complacency when the U.S. dollar is trending higher along with interest rates.”
Gold for December delivery GCZ8, -0.37% edged down $1, or less than 0.1%, to settle at $1,232.30 an ounce, squarely between the day’s high of $1,236.60 and low of $1,228.40.
The contract ended last week slightly lower after a report showed a U.S. job market that was even stronger than expected—data seen keeping the next Federal Reserve interest-rate hike likely on track for December. Higher rates dull the appeal of nonyielding bullion, while boosting the dollar, making dollar-priced commodities less attractive to investors using other currencies.
Still, data Monday showed the nonmanufacturing index compiled by the Institute for Supply Management slipped to 60.3 last month from a 21-year high of 61.6 in September.
The dollar continued its decline after the ISM services survey, with the ICE U.S. Dollar index DXY, -0.06% down 0.3% at 96.286 in Monday dealings. Last Thursday, gold settled at its highest level in more than three months when the index weakened and as stock markets wrapped up a dismal October.
“Increased risk aversion with the equity markets’ selloff has certainly added a risk-averse boost to gold in recent weeks, but if the dollar starts to lose traction due to the reversal of the U.S.-China trade dispute, then this could be a driver of continued gold strength,” said Richard Perry, analyst at Hantec Markets.
Perry is watching $1,236 as a technical “line in the sand” for gold and says a consistently higher market at that price opens the way to a climb toward $1,266.
Armbruster pointed out that “investors should keep in mind that central banks around the world (China, Russia and others) are reportedly adding to their gold holdings. Such behavior by central banks may trump headwinds from the dollar and interest rates and result in a surprise rally.”