Gold gains on dollar weakness as China relaxes Covid curbs

Summary:

• Dollar index .DXY down 0.3%
• China to drop quarantine rule for inbound travellers

Gold prices firmed above the key psychological threshold of $1,800 on Tuesday, as the US dollar weakened following China's decision to further ease Covid-19 restrictions.

Spot gold XAU= rose 0.6% to $1,809.20 per ounce by 1136 GMT. US gold futures GCv1 were up 0.7% to $1,817.60.

Gold is performing in line with risk assets, and "further signs that king dollar is loosening its grip on the safe-haven throne is also encouraging bullion bulls to restore spot prices back above the psychological $1,800 mark," said Han Tan, chief market analyst at Exinity.

The dollar index .DXY slipped 0.3% against its rivals as risk sentiment improved on news of China relaxing quarantine rules.

Top gold consumer China said on Monday that inbound travellers would no longer have to go into quarantine from 8 January, in a major step towards easing curbs on its borders, which have been largely shut since 2020.

The American currency and gold compete as rival safe-haven assets. A weaker dollar also makes the greenback-denominated bullion less expensive for other currency holders. USD/

Gold has gained nearly $200 after falling to a more than two-year low in late September, as expectations about slower interest rate hikes from the US Federal Reserve dimmed the dollar's allure.

"Gold was weaker for most of 2022 amid aggressive tightening of monetary policies, rising real yields and dollar strength. But the tide has turned as Fed shifts into policy calibration mode," said OCBC FX strategist Christopher Wong.

"Sustained recovery in gold prices is possible if Fed pivots."

Higher rates diminish gold's anti-inflationary appeal and increase the opportunity cost of holding the asset as it pays no interest.

In other metals, spot silver XAG= rose 1.6% to $24.09 per ounce, platinum XPT= gained 0.4% to $1,025.32, while palladium XPD= jumped 1.9% to $1,797.00.