Gold losses build, heads for 1% weekly drop as dollar strengthens

October 27, 2017

London (Oct 27)  Gold prices dropped Friday and continued to trade at levels not seen since early August, clobbered by a surging dollar.

A key dollar index climbed to a more than three-month high on Friday after more signs for President Trump’s promised tax reforms, a factor that has rallied the U.S. currency and driven stocks to record highs. The euro continued to slide after the European Central Bank said this week it will extend its quantitative-easing program, furthering the gap between European and U.S. yields.

Early Friday, December gold GCZ7, -0.21% slipped $1.70, or 0.1%, to $1,268.00 an ounce. Its settle at $1,269.60 Thursday was the lowest since Aug. 8, according to FactSet data. A close near Friday’s early level would leave the contract down about 1% for the week. The SPDR Gold Trust GLD, -0.84%  fell less than 0.1% premarket.

The broad-based gains for the buck helped the ICE Dollar Index DXY, +0.34%  rise 0.2% to 94.828, to trade at the highest level since July 20, according to FactSet data. That means the index is set for a 1.2% weekly jump, the biggest since December last year.

Adding to pressure on gold prices, the benchmark 10-year Treasury yield TMUBMUSD10Y, -0.22%  has churned at its highest level since March this week. Gold, which doesn’t yield interest, typically moves in the opposite direction to U.S. bond yields, because it becomes less attractive to investors.

On the data front, the first estimate of third-quarter GDP is due for release at 8:30 a.m. Eastern. It’s the last major piece of economic data before the Federal Reserve’s policy-setting meeting next week, a gathering that’s not expected to produce a rate hike but could set the table for a final rate hike of the year in December. Hurricanes Harvey and Irma are expected to have weighed on GDP, as economists polled by MarketWatch expect 2.4% growth, from 3.1% in the second quarter.

“U.S. economic news flow has markedly firmed relative to forecasts since mid-June, opening the door for an upside surprise that stokes tightening bets further and compounds pressure on the yellow metal,” said Ilya Spivak, commodities and currency strategist with Daily FX.

Aside from the latest pullback, global political unrest, including the quest for independence from Spain by Catalonia, could underpin gold demand.

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Analysts also attributed the greenback’s recent strength and gold’s weakness to bets that the Fed’s next leader will pick up the pace of interest-rate hikes or at least stay the course with plans for gradual rate increases late this year and next. Trump is expected to announce his choice before starting a trip to Asia on Nov. 3.


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