Gold inches up but remains mired near seven-month low ahead of Jerome Powell’s testimony
The metal’s biggest problem is that the dollar is upstaging it as a safe haven, says Nikos Kavalis of Metals Focus
London/Bengaluru — Gold edged up on Tuesday as the dollar dipped, but the metal was not far off a recent seven month low.
The dollar pared gains and most other markets were subdued ahead of Federal Reserve chairman Jerome Powell’s testimony to the US Congress.
Powell is expected to reiterate the Fed’s plan for gradual monetary policy tightening as he takes his upbeat view of the US economy to Capitol Hill later this session. Markets will focus on his views on recent trade tension, however.
The dollar nudged away from a two-week high hit on Friday. The greenback has put in a solid performance this year amid the intensifying trade conflict.
"The problem here is even though you have safe-haven factors that should in theory support gold, you’re having them drive investors to the safe haven of the dollar. That’s the biggest headwind for gold," said Nikos Kavalis, director at Metals Focus.
A strong dollar tends to weigh on gold by making the dollar-priced metal costlier for non-US investors.
Spot gold was up 0.2% at $1,243.34 an ounce at 10.05am GMT. It has lost about 9% since April 11 and is down about 5% for the year to date.
US gold futures for August delivery were up 0.3% at $1,243.40 an ounce.
The International Monetary Fund warned on Monday that escalating trade conflicts following US tariff actions threatened to depress medium-term growth prospects.
The comments came as China reported slower growth in the second quarter, though Beijing said on Tuesday it would not affect its 2018 growth target.
UBS economists lowered their estimates for Chinese growth on Tuesday to take into account trade war escalation.
"If China is slowing down, there will be consequences to global commodity consumption and that’s going to drag gold down as well," said Richard Xu, a fund manager at China’s biggest gold exchange-traded fund, HuaAn Gold.
"Investor appetite for gold is not very strong. Chinese gold ETF [exchange-traded fund] liquidity has dropped a lot these days so that means people do not see any major breakthrough in either direction."
Demand for gold in top consumer China has been weak as an ongoing trade war with the US has weakened the local currency.
Spot gold is expected to break a support at $1,237 an ounce and fall to the next support at $1,226, according to Reuters technical analyst Wang Tao.
Holdings in SPDR Gold Trust, the world’s largest gold-backed ETF, fell 0.15% to 794.01 tonnes on Monday.
In other metals, silver rose 0.4% to $15.81 an ounce, platinum was flat at $822.24 an ounce and palladium was flat at $916.