Strong US Dollar Dents Gold Prices

Gold prices fell on Friday, as the US dollar recovered from a week-long losing streak due to expectations of a Federal Reserve rate hike next week.
Spot gold dropped 0.6 percent at $1,163.72 an ounce and was down 1 percent for the week.

The U.S. dollar strengthened broadly after the European Central Bank said at its monthly policy meeting on Thursday that it would extend its asset purchase program for an additional nine months.

Additionally, the ECB left its benchmark interest rate unchanged at a record-low of zero.

How dollar affects gold price

The price of gold is generally inversely related to the value of the US dollar. A stronger US dollar tends to keep the price of gold lower and more controlled.

On the other hand, a weaker US dollar is likely to drive the price of gold higher. This happens because people have a tendency to invest and trade in dollars when the dollar is strong. During times of economic turmoil and when the dollar is weaker, people prefer to invest in gold, through vehicles such as gold funds and coins.

Gold forecast for 2017

Unsurprisingly, 2016 was a volatile year for the gold market. At the start of the year, analysts were all over the map on the 2016 gold price, predictions were as high as $1,382 per ounce, while others projected the price would fall lower than $1,000 an ounce.

The gold price had a strong start to the year, rising to $1,237.90 per ounce before March. By July, the yellow metal had soared to $1,365.40 per ounce, following the UK’s decision to leave the EU in June.

Since then, the price of gold has significantly dropped to $1.163.72 per ounce on December 8.
Moving into 2017, gold is expected to move much higher. Gold should be underpinned by stronger demand from India and China, but gains will be moderated by the high probability of the Fed lifting U.S. interest rates.

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