Gold traded lower Thursday, continuing to betray its reputation as a haven, as a global equity rout triggers forced liquidation and a surge in the U.S. dollar.
U.S. stock-index futures pointed to a lower start for Wall Street after another rout on Wednesday that was accompanied by selling across asset classes, including traditional havens like U.S. Treasurys, and a continued surge in demand for the U.S. dollar. The ICE U.S. Dollar Index DXY, +0.64%, a measure of the greenback against a basket of six major rivals, rose 1% Thursday after hitting a three-year high a day earlier.
“Investor panic on financial markets has resulted in a liquidation of open positions and a flight to the most liquid assets, such as U.S. Treasurys and cash in dollars and Japanese yen,” said Georgette Boele, precious metals analyst at ABN Amro, in a note.
Worries about physical demand as a result of a global slowdown are also a drag on gold, while a rise in the Cboe Volatility Index VIX, +3.61% to an all-time high and continued strength in the dollar set up a negative environment for the metal, she said.
‘We expect financial markets to remain in a risk off mode in the coming weeks and months, which should result in more dollar strength and gold price weakness,” she said.