Gold falls as dollar rises

Photo: Investing in Gold

Gold saw its value fall this week, as the dollar grew in strength. The precious metal, which benefits from demand for safe haven assets during economic uncertainty, flourishes against a weak dollar. During March, air strikes in Yemen increased global uncertainty, both politically and financially, which boosted gold's value significantly. But the US currency improved at the end of the month, as the Federal Reserve's outlook for the year ahead became more positive.

Fed Chair Janet Yellen said this week that the bank could be on course to raise interest rates this year, on the bank of sustained improvement in the US economy.

"Yellen's latest comments might just Change the course of gold and cause a downward movement in the price from hereon," Howie Lee, analyst at Phillip Futures, told Reuters, forecasting a fall to as low as $1,180.

Indeed, spot gold fell as much as 1 per cent to $1,186.75 an ounce at the end of March, down from a three-week high just a few days earlier.

The US economic trend is echoed by the UK, where inflation has been kept at a record low of 0.5 per cent since 2009. Despite potential negative inflation in the coming months, lower oil prices and consumer confidence are expected to drive UK inflation higher in the medium and long term, which could also see interest rates rise earlier than expected.

With the dollar rallying on the back of a strong dollar, and pending home sales contributing to the positive economic picture, Reuters forecasts that bullion is headed for a second monthly drop in a row.