Gold price back to losing ways as dollar extends its advance

New York (Oct 17)  Gold and silver futures slipped Monday after salvaging thin weekly gains last week. Short-term selling pressure persists after late-week Federal Reserve chatter did little to dissuade expectations for gradually higher U.S. interest rates.

Early Monday, December gold GCZ6, -0.02%  fell $1.30, or 0.1%, to $1,254.10 an ounce.

Gold futures settled lower Friday as the dollar climbed on the back of upbeat U.S. retail sales data, but the precious metal scored its first weekly gain in three weeks, up 0.3%. Futures had posted declines in each of the previous two weeks, including one slide that marked the largest of its kind in more than three years.

December silver SIZ6, +0.25%   fell 2 cents, or 0.1%, to $17.42 an ounce Monday, after holding on to a nearly 0.4% gain last week.

“An exciting week ahead, with two central bank meetings [European Central Bank and Bank of Canada] and the third and final U.S. presidential debate,” on Wednesday night, said Marshall Gittler, head of investment research, at FX Primus, in a note. “There are a number of Chinese economic indicators coming out on Wednesday, and we saw last week how news about China can whipsaw global markets,” which can support gold prices.

Ultimately, it’s the interest-rate watch that is dominating metals markets. Prospects for higher interest rates can boost the dollar and dull demand for dollar-denominated commodities including gold and silver.

The ICE U.S. Dollar Index DXY, -0.16%  rose 0.1% Monday. DXY rose over 1% last week. Euro-dollar’s move was particularly remarkable in Monday trading, as the shared currency at one point traded to a 2 1/2-month low against its U.S. counterpart. U.S. stocks, meanwhile, indicated a weaker start, which can underpin gold demand.

Nonyielding gold has also lost some of its short-term appeal as an alternative investment as Treasury yields hit 4 1/2-year highs.

As Friday’s report revealed stronger retail sales, Boston Fed President Eric Rosengren said Friday the central bank may have to be more aggressive in raising interest rates than the measured pace it currently projects. Treasury yields have climbed in anticipation the Fed will take action yet this year.

Also Friday, Fed Chairwoman Janet Yellen said an easy interest rate stance “could have costs that exceed the benefits by increasing the risk of financial instability or undermining price stability.”

Due out early Monday are reports on New York-area manufacturing as well as the Fed’s broader look at the nation’s industrial production. See the full economic calendar.

The next Fed meeting is scheduled for Nov. 1-2, but expectations for a rate increase at that meeting are slim. Markets have priced in more than a 60% chance for a rate increase at the December meeting, according to Fed-funds futures trading.

Read: A recession is coming—so hide in gold, says influential investor Raoul Pal

Gold’s early-fall price retreat was reinforced by Commodity Futures Trading Commission data.

“As the CFTC’s statistics on the positioning of speculative market participants show, the slide in the gold price in early October, which saw it fall below several technically important thresholds, was driven by speculation to a major extent,” said commodities analysts, led by Carsten Fritsch, at Europe-based Commerzbank, in a note.

In the week to October 11, net long positions were slashed by a further 26%. At 148,800 contracts, they find themselves at their lowest level since the end of May, the analysts noted. In the last two reporting weeks, net long positions tumbled by around 42% or 106,000 contracts.

“That was the most pronounced position reduction within the space of two weeks since the data series began 10 years ago,” they said. “We believe that this will ease the selling pressure from this side, however. What is more, because we assume that gold demand will pick up in Asia in the coming months, we expect the gold price to stabilize and then recover.”

Source: MarketWatch