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Gold settles lower, as dollar strength pulls prices to the lowest finish in over a week

MarketWatch logo MarketWatch 6/11/2021 Myra P. Saefong
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METALS STOCKS
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Gold futures declined on Friday, with strength in the U.S. dollar helping to send prices to their lowest finish in more than a week.

Prices have been pressured lower in part by solid gains in the U.S. dollar index on Friday, as well as some more “routine” profit taking from shorter-term futures traders, said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.

The ICE U.S. Dollar Index a measure of the currency against a basket of six major rivals, rose 0.6% Friday, on track for a weekly rise of 0.4%. A stronger dollar can weigh on commodities priced in the currency, making them more expensive to users of other currencies.

Gold is “continuing to exhibit strength,” Peter Spina, president and chief executive officer at GoldSeek.com. Gold price corrections haven’t been sustained, and are well supported — “an excellent sign of strength.”

Gold for August delivery

fell $16.80, or 0.9%, to settle at $1,879.60 an ounce on Comex Friday — the lowest settlement since June 3, FactSet data show. Prices based on the most-active contracts settled down about 0.7% for the week.

July silver rose 12 cents, or 0.4%, to nearly $28.15 an ounce, ending 0.9% higher for the week.

Gold prices were lower year to date, but have climbed by more than 9% for the quarter so far.

The main driver for gold’s strength are “real yields, which are falling as inflation heads higher and yields fall,” and the 10-year Treasury yield is looking vulnerable to a breakdown towards the 1% area, Spina told MarketWatch.

“This would light a fire in gold and shoot it above $2,000 and likely to new record highs,” with the next price target at more than $2,500 over the coming six to 12 months.

Gold has seen “stiff resistance” near the 2011 peak for prices, below $1,900, but it might be ready to take out the resistance level in coming sessions, he said. Expect “more volatility until then.”

Price for the metal rose modestly on Thursday after data showed U.S. inflation continued to run hot in May, though the yellow metal, traditionally seen as an inflation hedge, didn’t initially find support on the news.

Gold “fell initially on surging U.S. inflation, but found support from falling U.S. Treasury yields,” said Sophie Griffiths, analyst at OANDA, in a note. Yields falling on rising inflation appears counterintuitive, she said, “but as inflation is surging interest rate expectations are not, which is a sweet spot for gold.”

Read U.S. Treasury yields fall despite higher inflation: Here are some reasons why

The Federal Reserve’s response to record prints in consumer-price index (CPI), producer-price index (PPI) and the personal-consumption expenditures price index (PCEPI) “has been that this current inflation spike was expected, but that it would be transitory, resulting in the Fed continuing its aggressively accommodative monetary policy,” said Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust

The central bank’s response supports gold prices in two ways, he told MarketWatch. “It actively seeks to maintain extremely low (negative) real rates, eliminating the opportunity cost of holding gold, while at the same time increasing U.S. dollar devaluation concerns.” It also “increases concerns of inflation beyond the Fed’s expectations, potentially putting the Fed ‘behind the 8 ball’, adding to gold demand as a haven investment.”

Data Friday showed the University of Michigan’s gauge of consumer sentiment rose to a preliminary June reading of 86.4 from a final May reading of 82.9.

Meanwhile, the popular SPDR Gold Shares ETF was trading just above a “tactical decision point at $174.66 to $172.91,” wrote John Kosar, chief market strategist at Asbury Research, in a Thursday note. A fall through support at $174.66 to $172.91 “would warn that GLD’s previous February-April major downtrend is resuming.”

GLD traded down by 1.1% in Friday dealings at $175.75, poised for a weekly loss of 0.8%.

Rounding out action on Comex, July copper tacked on 1.2% to $4.54 a pound, prompting prices to turn up by about 0.2% for the week.

“Copper prices continue to react to China’s implementation of price controls to prevent ‘unreasonable’ increases in the price of copper,” said GraniteShares’ Klearman. Wednesday, following reports of much higher-than-expected increases in China’s producer prices, China re-emphasized its plans to closely watch and supervise commodity prices, he said.

July platinum rose nearly 0.5% to $1,151.10 an ounce, still down 1.1% from the week-ago finish, while September palladium settled at $2,780.80 an ounce, up 0.1% for the session and down 2.2% for the week.

With increased focus on renewable and sustainable energy demand, “the dynamics may be in place for platinum to outperform palladium,” said Klearman.

“Platinum is used as a catalyst in hydrogen fuel cells, providing potential for increased platinum demand,” he said. “Palladium’s main source of demand comes from its use in automobile catalytic converters. The push to electric vehicles may affect that demand.”

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