World gold price drops when the dollar is strong

On August 3, the price of gold on the Kitco exchange was $1,935.85 per ounce, down $16.32 from the previous session.

If the labor market shows signs of recovery, the US Federal Reserve (Fed) may raise interest rates, which could negatively impact gold. Analysts predict a slight decline in July payrolls, but they will remain relatively high.

The strength of the dollar and higher interest rates are putting pressure on gold prices, which are currently stuck between $1,900 and $2,000. In a surprise move, credit rating agency Fitch downgraded the US government's credit rating from AAA to AA+, citing the expected fiscal decline in the coming years. This is the first major downgrade in over a decade.

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Traders and investors were not shaken by the sudden Fitch news, but it did somewhat dampen the market's optimism that had previously pushed US stock indexes to highs. new in the year. Initial safe-haven demand for gold was dwarfed by the aforementioned bearish external markets today.

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Jim Wyckoff, senior market analyst at Kitco, wrote in a report: “Traders and investors were not shaken by the sudden Fitch news, but it did somewhat alleviate the sentiment. Previous market optimism has pushed US stock indexes to new highs for the year.”

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The outlook for the yellow metal remains hazy, especially with US interest rates set to stay higher for longer this year. While gold is expected to benefit from the Fed's final rate cut next year, it is expected to receive limited support in the near-term.

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The US ADP National Employment Report for July revealed an unexpected surge of 324,000 workers, surpassing the estimated 175,000 increase. This significant rise follows a previous increase of 497,000 in the June report. The strong data is likely to impact the gold market and influence advocates of US monetary policy, who are in favor of a rate hike by the Fed.

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Edward Moya, senior North America analyst at OANDA, sees gold's potential as the market understands the impact of Fitch's downgrade.

“The gold market will struggle as the US curve continues to fall,” he said. “The VIX is up and it looks like Wall Street is worried. Gold will eventually act like a bully,” he said. safe haven as equities remain vulnerable as upbeat outlook is growing."

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“Once things settle down, gold could come back as a safe haven,” said Michele Schneider, director of trading research and education at MarketGauge.

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The recovery of the economies of Europe and China may also slow down the rise of the dollar, thereby pulling gold prices up.

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In his latest gold report, Bart Melek, head of commodity strategy at TD Securities, said he expects gold to push to $2,100 an ounce, a new all-time high by the end. This year, weak economic data will change the Fed's stance.

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This decrease in price was influenced by the strength of the dollar, which also raised concerns about the labor market. Despite Fitch's downgrade of the US sovereign rating, there was little safe-haven demand for gold. Analysts believe the downgrade will have minimal impact on financial markets and is driven more by concerns about fiscal spending and political controversies.

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The central bank is on track to bring inflation down without causing a recession, said Austan Goolsbee, president of the Chicago Fed. The agency is monitoring the data to assess the possibility of monetary tightening in September.

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According to CME's FedWatch Tool, there is an 83% chance that the Fed will keep rates unchanged at its September meeting. Gold prices are very sensitive to rate hikes. Rising interest rates increase the opportunity cost of holding non-yielding assets like gold.