Gold prices dropped on Monday as a stronger US dollar outweighed the impact of uncertainty created by Italy’s unclear election result and fears of a possible global trade war.
Spot gold lost 0.2 per cent to $US1,319.82 per ounce in afternoon trade, after touching its highest since February 27 at $US1,327.86.
US gold futures for April delivery settled down $US3.50, or 0.3 per cent, at $US1,319.90 per ounce.
‘What might be supporting the US dollar: expectations of Fed rate hikes have really increased over the last week or so,’ said Daniel Ghali, commodity strategist at TD Securities, after new Chair Jerome Powell’s testimony indicated his optimistic outlook on the US economy and opened the door for four interest rate hikes.
The US dollar index , which measures the greenback against major currencies, gained 0.2 per cent, having touched its lowest in almost a week earlier in the session
But support for gold came from US President Donald Trump’s announcement last week that the country would levy hefty tariffs on aluminum and steel imports. This was followed by threats of retaliation from the European Union and Canada.
In Italy, voters delivered a hung parliament on Sunday and if early projections are confirmed, none of Italy’s three main groups will be able to rule alone and there is little prospect of a return to mainstream, moderate government.
‘Gold is supported because of the talk of trade wars. Whether they will occur or not will increase the probability of a policy mistake from the Fed that would obviously be bullish for gold,’ Ghali added.
Gold is often seen as an alternative investment during times of geopolitical and financial uncertainty, benefiting along with other safe-haven assets such as the Japanese yen and US Treasuries while stocks tend to trend lower.
The market was anticipating the release of US payroll data on Friday which will help guide interest rate expectations.