Gold firms on soft dollar as focus turns to Fed

Gold rose on Monday, consolidating near the $1,950 mark after plunging 4.5% last week, buoyed by a weaker dollar as investors await the fine print on the U.S. Federal Reserve’s strategy to stem the economic toll of the coronavirus.

Spot gold rose 0.3% to $1,950.16 an ounce and U.S. gold futures gained 0.5% to $1,959.10.

Gold last week registered its biggest decline since March as investors reassessed positions after bullion retreated from a record peak of $2,072.50 scaled on Aug. 7.

“We’re seeing a consolidation phase after last week’s sell-off,” said ActivTrades chief analyst Carlo Alberto De Casa, adding that “interest for gold remains elevated”.

The market is trying to find a new equilibrium, but signs of further dovish central bank policy and a move above $1,960 could provide space for further rallies, he said.

Coronavirus cases, meanwhile, continued to surge globally, especially in the United States and India, casting a shadow over hopes of an economic recovery. Also making gold cheaper for those holding other currencies, the dollar remained on the defensive, having hit a more than one-week low earlier in the day.

The minutes from the Fed’s last policy meeting are due on Wednesday, with markets looking for any hints of a possible change to its guidance at its next review in September

“If there is something strong (from the Fed), more than what’s already priced in”, gold could rise again to $2,000, said ActivTrades’ Carlo.

Unprecedented global stimulus measures in response to the COVID-19 pandemic, which have fuelled fears of inflation and currency debasement, have helped gold prices to climb more than 28% this year.

While the outlook remains constructive for gold, there are indications the recent correction could have room to run in the short-term, said IG Markets analyst Kyle Rodda.

In other precious metals, silver rose 1.4% to $26.77 an ounce, platinum gained 2.1% to $955.54 and palladium

was up by 3.1% at $2,173.37.