Comex Gold Eases On Stronger Dollar, Equity Market
New York (Sept 19) Gold futures are modestly softer in reaction to a stronger U.S. dollar and equities early Friday, holding just above the lows hit this week that were the weakest levels since the start of the year.
As of 8:06 a.m. EDT, gold for December delivery was $4.20 lower at $1,222.70 an ounce on the Comex division of the New York Mercantile Exchange. Spot gold was down $2.55 to $1,222. December silver slipped 10.7 cents to $18.410 an ounce.
“The big elephant in the room is the strength in the U.S. dollar,” said Phil Flynn, senior market strategist with Price Futures Group. “Because the Fed is leaning toward finishing its quantitative easing while the rest of the world is going into the abyss, it’s creating this rate discrepancy that is driving the dollar ever higher and driving down gold.”
U.S. Treasury yields have been rising on expectations for higher U.S. interest rates if the economic recovery continues. The 10-year yield Thursday rose to 2.642%, its highest level since July. Meanwhile, the European Central Bank and Bank of Japan have been looking to ease monetary policy further.
Flynn said a rising dollar makes gold more expensive in the currencies of other nations, which can hurt demand.
Afshin Nabavi, head of trading with MKS (Switzerland) SA, said the yellow metal is modestly softer in reaction to both a stronger dollar and continued strength in the equity market.
The euro fell to $1.28561 from $1.29150 late Thursday. Also, one day after the S&P 500 and Dow Jones Industrial Average hit record highs, the futures are pointing toward more strength Friday. The December S&P 500 stock index was up 4.30 points to 2,008.90.
Daniel Briesemann, commodity analyst with Commerzbank, said the gold market is trading in a narrow range so far Friday. The December futures have been in a band of just over $10 despite a major piece of news such as the Scottish vote to remain a part of the U.K.
The London a.m. gold fixing was $1,222.50 an ounce, compared to the previous p.m. fixing of $1,220.50.
Tim Gardiner, managing director of global metals with TD Securities, said “some physical demand has been returned to gold” after the recent decline in prices. Gold on the Shanghai Gold Exchange has traded at a premium of around $4 to $5 for much of the week, he said.
Currency analysts said the greenback got a boost this week when Federal Open Market Committee members raised their forecasts of where the federal funds rate is likely to be at the end of 2015. Their median projection of Fed members was for the federal funds rate at the end of 2015 to be 1.375%, compared to 1.125% in June. Markets construed this to mean whenever tightening begins, rates could rise faster than previously thought.
Otherwise, the Fed said it would still leave rates low for a “considerable time.”
For now, Thursday’s low of $1,216.30 may be seen as the near-term support. A bigger chart level numerous traders have been citing is the $1,180 area that was a double-bottom during 2013 on a futures continuation chart.
Flynn suggested the $1,200 area should provide some support technically, even if the greenback firms some more.
“From a technical viewpoint, the market is really retesting where we started the year for gold,” he said. “If you remember, $1,200 was an area where we blasted off from at the beginning of the year, and gold went straight up. It seems like we’ve retested that area and held. This is probably going to be a very tough area for gold to go lower, even with the strength of the dollar. So I think we’re coming into some major support from a long-term viewpoint.”
Observers offered mixed opinions on how the Scottish vote against independence may have affected gold. Some said there was no effect, while others suggested the sharply higher British pound against the euro may have spilled over into euro weakness versus the dollar and therefore affecting gold slightly.
Flynn pointed out some gold buying as a safe haven reportedly occurred in the U.K. ahead of the vote. “Now that the vote is over, the need to buy gold is not as acute,” he said.