Gold price back to nearly one-month low as interest-rate path scrutinized
London (June 19) Gold prices eased Monday, flirting with setting nearly one-month lows, even as a major dollar index also softened.
Although metals prices rebounded slightly Friday, gold has been plagued with a downbeat tone in the wake of recent signals from the Federal Reserve for at least one more increase to interest rates this year. That view sent the yellow metal down for a second-straight week last week.
Yet the metal is finding some underpinning tied to the uncertainty around Brexit negotiations, said analysts. Negotiations for the terms under which the U.K. splits from the European Union begin Monday in Brussels.
August gold GCQ7, -0.39% fell $4.00, or 0.3%, to $1,252.50. A close at this level would be the lowest since May 23, according to FactSet data.
The metal suffered a 1.2% weekly decline last week. That marked back-to-back weekly losses for gold to snap a string of five-straight weekly gains.
The closely watched dollar index DXY, +0.03% slipped on Monday, bucking its typically inverse relationship to gold. A weaker dollar typically makes the metal more attractive to investors using another currency.
“Speculative financial investors have also retreated from gold again of late, slashing their net long positions by 11% to 147,500 contracts in the week to June 13,” noted Carsten Fritsch, Commerzbank commodities analyst, in a note.
“This happened before the Fed meeting, so net long positions are likely to have been further reduced in the meantime,” he said, adding, “Today sees the official start of Brexit negotiations in Brussels. The positions of the EU and the U.K. are still far apart. The presumably tough negotiations should contribute to solid demand for gold.”
Economic uncertainty could continue to hold sway over metals and currency trading, although few major economic data releases are due at the week’s start.
Last week, Fed Chairwoman Janet Yellen and her colleagues laid out a plan to shrink the central bank’s massive $4.5 trillion balance sheet, one of its economy-spurring tools, starting this year, as they also raised a key U.S. interest rate.
Analysts said the rate increase was fully expected, but the central bank’s more hawkish tone toward forward-looking policy was somewhat surprising. Precious metals prices often decline when rates rise, as some investors back away from the metal because it doesn’t pay interest.
Economic data has been spotty, but the Fed seems convinced that’s a short-term blip.
“Friday’s release of a weaker-than-expected University of Michigan Sentiment survey [measuring consumer sentiment] and housing made the market trade as if the Fed had undergone a policy mistake by sounding out its hawkishness. Here we think the market has been wrong,” said Hans Redeker, currency strategist at Morgan Stanley, and his research team, in a note.
“The [Morgan Stanley] indicator of real activity (ARIA) predicts the U.S. economy keeping its current growth momentum and translates into strong GDP trackers for 2Q with the Morgan Stanley number at 2.8% and Atlanta Fed at 2.9%,” they said. “The Fed seems to be using similar thinking to our own, meaning the busy lineup of Fed speakers this week should see U.S. real rates staying supported.”
Meanwhile, July silver SIN7, -0.28% fell 2 cents, or 0.2%, to $16.63 an ounce. The contract settled at $16.661 on Friday, its lowest in more than a month. The white metal declined 3.3% for the week.
July copper HGN7, +0.80% was up less than half a cent at $2.5865 a pound, after it ended about 3.2% lower for the week. July platinum PLN7, -0.71% was down $3.20, or 0.4%, at $923.60 an ounce, after a weekly loss of about 1.4%, while September palladium PAU7, -0.25% added 20 cents, or 0.02%, to $865.85 an ounce. Its weekly gain was roughly 1.1%.
Among the exchange-traded funds, the SPDR Gold Trust GLD, +0.02% was down 0.3% premarket. The iShares Silver Trust SLV, -0.57% declined by 0.1%, while the VancEck Vectors Gold Miners ETF GDX, -0.18% shed 0.4%.
Source: MarketWatch
