Investing.com - A rebounding dollar knocked gold off its $1,200 perch Monday, but traders said they expected geopolitical worries and Italy’s debt crisis to limit further downsides in the metal.
Gold futures for December delivery on the COMEX division of the New York Mercantile Exchange settled the day’s trade down $17, or 1.4%, at $1,188.60 per troy ounce amid the closure of U.S. bond markets for the Columbus Day holiday.
It was also the largest daily percentage loss for gold in nearly two weeks.
Despite the downdraft, the market recovered in after-hours electronic trade. By 2:27 PM ET (18:27 EDT), the December contract was down by 1.2%, or $14.90, lower at $1,190.70.
“Most Wall Street gold traders don’t see gold testing the most recent low of $ 1,160,” said Waller Pehowich, executive vice president of investment services at Dillon Gage Metals. “The stronger dollar just keeps the price of gold locked in its trading range between $ 1180 and $ 1210.”
The dollar reasserted its role as a safe-haven play last week on worries of a eurozone-wide contagion from Italy’s fiscal issues. But a wind-up in hawkish Federal Reserve language after the recent rate hike bolstered the prospects for the dollar again, allowing it to gain at gold’s expense.
A weaker dollar can make dollar-denominated assets, like gold, less expensive to potential buyers holding other currencies. The U.S. dollar Index, which measures the greenback’s strength against a basket of six major currencies, rose by 0.14% to 95.44.
The Fed added a quarter point in the final week of September to bring rates to between 2.0% and 2.25% and indicated another increase in December. Fed Chairman Jerome Powell said last week that rates may rise above an estimated "neutral" setting as the economy continues to grow.
“Further erosion of emerging markets may bring forth some retail gold sellers,” said George Gero, analyst with the RBC Capital Markets group in New York. “But looking ahead, I see more stress and nervousness in Italy, Greece and South America, not forgetting U.S. midterm elections and commodity crop problems caused by weather, so gold could attract buyers at lower levels sooner than later.”