Metals Stocks: Gold ends higher to recoup much of its recent loss as the dollar stabilizes

There’s been speculation that unrest in major Chinese cities over COVID restrictions may force the government to loosen its strict zero-CCOVID policy faster, said Razaqzada. The government’s pledge to step up its vaccination efforts “may be a step towards reducing excessive restrictions in the future” — at least that’s how some investors may have interpreted the situation, given the rally in Chinese equities overnight, he said.

Gold, however, is “by no means out of the woods,” he said. “A potential recovery in the dollar and still-rising interest rates around the world means investors might shy away from low- and zero-yielding assets like gold.”

Investors have also looked to the U.S. dollar, as the “debate over whether the greenback has already peaked continues,” said Razaqzada. Some weakness in ICE U.S. Dollar index
DXY,
-0.27%
early Tuesday helped to provide support for dollar-denominated gold prices.

Gold lost ground Monday as protests across China over the country’s strict COVID curbed worried investors and helped lift the U.S. dollar. A stronger dollar can be a headwind for commodities priced in the unit, making them more expensive to users of other currencies.

The dollar was also boosted by remarks from Federal Reserve officials that indicated the central bank will continue to aggressively tighten monetary policy.

See: Fed will likely need to keep interest rates above 5% into 2024 to succeed in taming inflation, Bullard says

Still, some “recent dovish commentary from Fed officials amid signs of slowing inflation has fuelled bets of a slower pace of interest rate increases,” Razaqzada said. “The very fact that the Fed is still hiking means the job is not done yet. Investors are wary of shorting the dollar too far in these uncertain times.”

Read: Fed eyes slower rate hikes as recession threat grows