Gold price churns near best level in 4 months, tethered to dollar

January 16, 2018

New York (Jan 16)  Gold prices drifted near four-month highs Tuesday, with any big gains for the yellow metal capped by a dollar that had scratched its way up from a three-year low but was said to be still bogged down by negative sentiment.

February gold GCG8, +0.10%   changed hands at $1,335.10 an ounce, up some 2 cents and less than 0.01%, according to FactSet data. Gold, which returned to levels last seen in mid September in recent trading sessions, last week tallied a fifth week of consecutive gains, the longest such stretch since April. Month to date, the metal has climbed roughly 2%.

The exchange-traded SPDR Gold Shares GLD, +1.21%  was up 0.4% premarket. And the VanEck Vectors Gold Miners ETF GDX, +2.69%  eased 0.2%.

The dollar broke a four-session losing run on Tuesday, rebounding slightly as U.S. traders returned from the Martin Luther King holiday. The ICE U.S. Dollar Index DXY, +0.19%  recovered 0.3% at 90.69, just north of its lowest level in three years. The dollar rose 0.2% against the euro, having hit a three-year low near $1.22 against the single currency on Monday as traders shifted their attention from the Federal Reserve to the European Central Bank. A weaker dollar can boost the appeal of gold as an investment, as most commodities are priced in dollars. Conversely when the dollar gains, gold tends to drop.

“The dollar has been in free fall in recent days ... as traders question whether the Federal Reserve will continue to hike interest rates at the current pace, while raising tightening expectations for those elsewhere, in particular the European Central Bank,” said Craig Erlam, senior market analyst with Oanda.

Gold remained relatively strong against the backdrop of three U.S. interest-rate hikes in 2017, but could suffer if tightening continues, and especially if the pace picks up in 2018, analysts say. Gold is highly sensitive to rising rates, which increase the opportunity cost of holding non-yielding bullion.

Inflation, which has a two-pronged influence on gold prices, also remains in focus. Traditionally, the yellow metal has been seen as a hedge against inflation’s erosive effects on other assets and some analysts think the metal will regain this function as inflation picks up this year. That said, the impact from inflation in pushing up U.S. Treasury yields can make nonyielding bullion less attractive in a rising-rate environment.

In other metals action, March silver SIH8, -0.01%  was little moved at $17.140 an ounce, while the iShares Silver Trust SLV, +1.62% lost 0.8% premarket. March copper HGH8, -0.64%  shed 0.7% to $3.1945 a pound.

Palladium scored another record settlement, with its March contract PAH8, +0.76%  up 0.4% to $1,109.35 an ounce. April platinum PLJ8, +0.15% slipped 0.1% to $995.40 an ounce. It has churned below $1,000 after briefly topping this line last week for the first time since September.


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