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Gold Challenged by US Dollar Strength

Gold Challenged by US Dollar Strength

After reaching close to $1,740 just a week ago, gold has now fallen and is hovering at the $1,680 support level. For the Asian session, gold remained largely unchanged, as it moved only 1% to the downside.

Gold’s status as the king of safe havens has been challenged by the US Dollar, which continues to consolidate above 100 points on the Dollar Index. Gold’s strength is inversely proportional to that of the US Dollar, and when the price of crude oil crashed earlier this week, investors flocked to the Dollar for liquidity, just as they had done when the stock market crashed. The oil crash was once again a stark reminder of the current market volatility and risk sentiment, driving investors back to the greenback for safety as a result.

Global governments and central banks have already pledged as much money as possible into the economy in a desperate attempt to mitigate the economic damage that the coronavirus pandemic is causing. But there is still currently extreme uncertainty over whether or not the crisis could continue to worsen or be prolonged. As long as the virus is still active, the economy will not be able to function properly, as people will have to maintain social distancing and many businesses such as retail will be affected as a result. Therefore, it is possible that all the money that governments have to spend could turn out to still not be enough.

Normally such a crisis scenario is where gold shines the brightest, but a number of factors, such as the shortage of physical gold in New York, where contracts are traded, and the increased demand for liquid cash as a safety net, has caused the USD to rise in strength as well.

For gold to rise the US Dollar would have to ease in strength, which seems unlikely in the current scenario. But while not as dominant as expected, gold is still strong. Due to the current risk sentiment and gold's ability to retain its value, it is still an strong option at the moment, so we should not see gold making any drastic price movements.

Last night on our YouTube livestream we analysed the price crash of oil, and the reasons for its crash. You can watch it below, or join us every weekday at 10.00 am GMT as we go over the latest news and market moves.