The greenback wavered for the fourth straight day as traders reacted negatively to news regarding the potential Fed tapering in the near future. The losses to the dollar inversely benefited gold and silver, with the former reaching seven-week highs, according to Bloomberg.
Gold’s inherent value as a safe haven or alternative investment has led to its value increasing rapidly since the Fed news.
“The dollar has weakened, so that is helping gold,” Bart Melek, head of commodity strategy at TD Securities, told the news outlet. “We had seen some aggressive short positions being taken. Some of that is being taken off as many people feel that gold isn’t dropping into the precipice. It’s no longer a one-way bet.”
MarketWatch reported that the metal rose $30 an ounce during trading on Tuesday, and much of the move to gold may have resulted in traders covering their positions.
Recent increases for gold were “no doubt due to a large extent to speculative financial investors covering their short positions, having previously built up record-high bets on falling prices,” analysts at Commerzbank AG wrote in a note to clients.
Despite the recent gains, however, gold is still experiencing a down year. The metal is projected for an annual drop in value for the first time in 13 years.
The uncertainty surrounding the Fed’s future actions is likely to leave the precious metals market in a state of flux for the near future. Reuters reported that Fed officials recently noted that the bank supported market views that tapering was a likely move in the near future.
Two regional heads of the bank said that bond purchases could drop as a result of the recently improved labor market in the U.S. The unemployment rate dropped to 7 percent, giving Fed officials confidence that the recovery was sustained enough to taper.
All of this holds value for gold in the coming weeks, but this may not be sustained growth for the metal, according to Reuters.
“In the current environment, it appears further USD weakness is likely. This should provide some support for bullion,” HSBC analysts said in a note. ”Beyond that, we believe gold prices are more likely to stay in a tight trading range in the near-term, barring any major economic surprises.”
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