Dollar Regains Ground as Oil Prices Soar, Weighing on Precious Metals

The dollar has regained some ground ahead of inflation data releases and higher oil prices, which could further support the greenback. This shift in market sentiment is a negative development for precious metals like gold and silver.

The US Treasury's announcement to buy back $6bn of long-dated government bonds helped the dollar recover after it struggled to get going post the jobs report on Friday. However, investors remain sensitive to the prospect of fiscal and monetary policy contributing to a weaker currency over time.

Higher oil prices have historically provided a favourable backdrop for the dollar, which is currently above $100 per barrel. This could further negatively impact precious metals, which are being treated as risk assets rather than alternatives to USD. The immediate focus is on August US PPI inflation data, with consensus expecting a 0.4% month-on-month increase in headline PPI.

Gold has made a lower low recently below $4,324 and a break below this level could potentially pave the way for a larger decline towards the base of the previous breakout around $4100 area. Silver also looks increasingly vulnerable to a more meaningful decline after struggling to sustain momentum around the $68 area.