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2-6 February 2020

Gold gets off to strong start in early 2018

17 Jan 2018

By David Brough

Spot gold touched a peak of $1,344.44 an ounce on January 15, its highest since September 8, coinciding with the dollar’s three-year low against a basket of currencies. 

The soft dollar makes gold cheaper in terms of other currencies.

One reason for the softer dollar was sentiment that the European Central Bank could be about to further trim  monetary stimulus, which strengthened the euro.

Investor worries over a U.S. tax overhaul, which could boost the fiscal deficit, have dragged on the dollar.

The dollar fell in recent weeks after the U.S. Federal Reserve raised interest rates, as widely expected by financial markets, in December and signalled three more rate raises in 2018 as the U.S. economic recovery gains momentum.

For UK jewellers contemplating re-stocking dollar-denominated gold, the exchange rate outlook for the pound against the dollar remains in focus.

The pound strengthened against the dollar in mid-January, after a report that the Netherlands and Spain were open to a deal for Britain to remain as close as possible to the European Union.

The pound was now close to its highest levels against the dollar since the Brexit vote in June 2016.

If the UK government makes progress in the next stage of Brexit talks, and moves forward more quickly than expected in negotiations with the EU, the pound could strengthen against the dollar.

Gold looked set to receive support from its safe-haven status due to global worries over the impact of President Trump’s decision to waive nuclear sanctions against Iran for the last time to give the United States and its European allies a chance to sort out the nuclear deal.

Gold prices could benefit in 2018 from its safe-haven appeal to investors if tensions flare up again in the Middle East or the Korean peninsula. 

Gold is well-known for its safe-haven status, benefiting from inflows of funds at times of heightened geo-political instability.

Gold prices could also rise if stock markets drop from record highs.

Furthermore, a slump in bitcoin could bolster gold.

Gold prices could receive support from strong physical demand, notably in China and India.

Another positive signal for the gold price was news that hedge funds and money managers raised their net long positions in COMEX gold and silver contracts in the week to January 9. This signalled confidence in the outlook for bullion prices.

Gold’s recent strength could be challenged by a possible build in momentum for interest rate increases in the United States as falling unemployment could stimulate inflation, driving up pressure for further rate rises.

Boston Federal Reserve President Eric Rosengren warned on January 12 that rising inflation could lead to interest rate hikes that trigger a recession in the world’s largest economy.

Rising rates would reduce the appeal to investors of non-interest-bearing bullion.

Gold is well-known for its safe-haven status, benefiting from inflows of funds at times of 


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