Gold Falls as Dollar Dominates Metal Markets; Volatility Drops

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The gold market is continuing to be dominated by the dollar.

The metal fell for the third time in four sessions as budget turmoil in Greece drove the greenback higher against the euro. Gold has the strongest negative correlation with the Bloomberg Dollar Spot Index since December. The stronger U.S. currency reduces demand for gold as an alternative investment.

“We don’t know what’s happening with Greece, and we don’t know what’s happening with the euro, so it’s about what’s happening to the dollar, and that’s how gold seems to be trading,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “The gold market is going to trade piggy-backing on the dollar until we get more information out of the euro zone.”

On the Comex in New York, gold futures for August delivery declined 0.4 percent to settle at $1,180.90 an ounce at 1:40 p.m. The metal’s 60-day volatility dropped to the lowest since November, and aggregate trading was 36 below the 100-day moving average, according to data compiled by Bloomberg.

Gold and the dollar index have moved in opposite directions for nine straight sessions, the longest run since November. The 30-day correlation between the two was minus 0.64, the most negative since mid-December, according Bloomberg data. A reading of 1 would signal the two moved in lockstep in the same direction, and minus 1 reflects opposite movements.

Interest Rates

Federal Reserve policy makers are starting a two-day meeting on Tuesday, and they probably will debate the timing of interest-rate increases. Gold has dropped 0.4 percent this year as investors wait for more direction on when officials will start tightening. Higher rates curb the metal’s allure because it doesn’t pay interest like competing assets, such as new bonds.

Silver futures for July delivery fell 0.7 percent to $15.965 an ounce on the Comex. The metal’s 60-day volatility dropped to the lowest since November.

Platinum futures for July delivery dropped 0.8 percent to $1,079.80 an ounce on the New York Mercantile Exchange. Yesterday, the price touched $1,077.20, the lowest for a most-active contract since May 2009.

On Monday, aggregate open interest rose to a record 81,060 contracts. In the week June 9, hedge funds cut net bullish bets to 10,695 futures and options, the lowest since August 2012.

Palladium futures for September delivery declined 0.2 percent to $732.80 an ounce. The price touched $731.90, the lowest since March 31. The metal has climbed only once this month. Its 60-day volatility dropped to the lowest in five months.

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