(Kitco News) - Thethreat of a “currency war” may provide fuel for gold to continue its rally,Commerzbank analysts said Thursday.
Thedollar has significantly weakened since U.S. Treasury Secretary Steven Mnuchincommented at the World Economic Forum in Davos Wednesday that a weaker dollarwould be “good” for the U.S. Previously, since the Clinton presidency, U.S.administrations have tended to support a strong-dollar policy.
Anytime a country’s currency weakens, prospects improve for exports from thatnation since it makes products less expensive in other currencies. A number ofother countries have seemingly favored a weaker currency in recent years, whichprompted some analysts to facetiously call this a “race to the bottom.”
Thedollar has in fact slid sharply the last two days. The euro has risen from$1.22972 late Tuesday to a high of $1.25378 so far Thursday, the singleEuropean currency’s most muscular level since December 2014.
Aweaker dollar is supportive for gold since the yellow metal tends to moveinversely to the U.S. currency. Spot gold Thursday has traded as high as$1,366.05, its strongest level since August 2016.
“Theincrease in the gold price was due almost solely to the weak U.S. dollar, ascan also be seen from the reaction of gold in euros - it achieved only moderategains and is still trading below the ?,?1,100 per troy ounce mark,” Commerzbanksaid.
TheGerman bank later added: “The threat of a currency war, coupled with anuncertain outlook, is likely to push investors further towards gold.”
Mnuchin’sremarks meant an even greater focus on Thursday’s meeting of the EuropeanCentral Bank to see how policymakers might react, Commerzbank said. The centralbank left interest rates unchanged, and analysts said ahead of time that therising euro likely would make policymakers want to avoid sounding too hawkish.
ECBPresident Mario Draghi, in his press conference, said Europe would notparticipate in a currency war, thereby avoiding verbal intervention.
By Allen SykoraFor Kitco News
Follow @AllenSykora