Gold prices start the week down despite weak USD, silver prices down 2%

Gold investors appear hesitant to jump into the precious metal even as the U.S. dollar starts the week on a soft note.

According to some analysts, the Federal Reserve's impending monetary policy decision this week has pushed many investors and traders to the sidelines. According to the CME FedWatch Tool, markets see a more than 77% chance of a 75-basis point move. Although the prospect of a 100-basis point move is effectively off the table, analysts have said that gold continues to struggle as the Federal Reserve expects to reiterate its hawkish positioning for further aggressive rate hikes in the fall.

August gold futures last traded at $1,718.50 an ounce, down 0.5% on the day. Although some analysts expect gold has room to run higher this week, it will remain at the mercy of the U.S. dollar, which could see new momentum following the central bank's monetary policy decision.

Currency analysts at Brown Brothers Harriman said that they remain bullish on the U.S. dollar even as it sees three days of consecutive losses.

"We are not yet ready to change our strong dollar call. Yes, the U.S. economic data have been weakening, but we do not think a recession is imminent. When all is said and done, we believe the U.S. economy remains the most resilient. However, we expect a period of consolidation ahead for the dollar until the U.S. economic outlook becomes clearer," the analysts said in a note.

Commodity analysts at TD Securities have said that despite some shifting sentiment in the marketplace, gold faces a uphill battle. The analysts said that gold prices need to push above $1,775 an ounce to threaten the current downtrend.

Will gold survive another 75 basis point hike

Although gold continues to struggle in the shadow of the Federal Reserve, it remains one of the best-performing assets in the precious metals space and is significantly outperforming silver prices.

September silver futures last traded at $18.26 an ounce, down nearly 2% on the day. The gold/silver ratio is trading at a fresh two-year high above 93 points. Analysts have said silver will continue to struggle due to growing recession fears. Industrial demand accounts for 60% of silver demand and analysts point out that weak economic growth will lead to lower demand for silver.

In a recent interview with Kitco News, Christopher Vecchio, senior market analyst at DailyFX.com, said that because of the strong U.S. dollar, he prefers to play gold in a pair trade with silver. He added that he is long gold and short silver and expects the grey metal to continue to underperform.

However, some analysts are optimistic that silver can find some footing in a strong gold market.

"Silver is still trying to figure out what it wants to do around long-term support area between $18 to $19," said Fawad Razaqzada, market analyst at City Index. "But the lack of follow-thru has frustrated both the bulls and bears alike. Given gold's lead, the risks are skewed to the upside for silver."

By Neils Christensen

For Kitco News

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