Futures of Gold climbed in European trading on Wednesday after dropping to the weakest level in almost two weeks, as market players shifted their focus on movements in the United States dollar.
The dollar index that measures the dollar’s strength against a trade weighted basket of rival currencies held its consecutive gains for six days on Wednesday, plunging to 93.99 after surging to 94.33 in the prior session which is the highest level since April 28.
Sinking against the yen below 109 levels, market investors locked in gains following its sharp climb after continued remarks regarding possible intervention by the Japanese government.
Weakness of the greenback is usually considered bullish for gold, as it bolsters the yellow metal’s appeal as a safe haven asset and makes dollar denominated commodities cheaper for foreign currency holders.
As stated by a market analyst, “Gold is looking more and more attractive every single day. As a non-yielding asset, it has a minimal storage cost, so when you compare it to negative-yielding assets, it actually has a positive carry.”
On the COMEX division of the New York Mercantile Exchange, gold for June delivery soared by as much as 0.9 percent to an intraday high of $1,276.10 per troy ounce before losing some gains to trade at $1,274.75, rallying $9.95 or 0.79 percent.
A day earlier, gold slumped to $1,258.30, which is a level last seen in April 28, as steep surges in the greenback and global equity markets eased the appeal of the yellow metal.
Prices of the precious metal are still up approximately 109 percent so far this year amid signs that the Federal Reserve will gradually and cautiously hike interest rates this year.
According to a commodity analyst, “Looking ahead, we see limited upside for gold pricing given the limited room for the Fed to surprise to the downside, limited room for the dollar to depreciate, and limited room for China to drive (emerging market) currency strength to contribute to dollar weakness.”
Gold is affected when the United States interest rate are high, since a hike would elevate the opportunity cost of holding non yielding assets such as bullion. A slower take on higher interest rates is considered less of a threat to the yellow metal’s prices than a swift series of jumps.