Gold price drops, remains near lowest levels in a year

New York (July 26)  Gold futures dipped into the red Thursday, continuing the choppy, mostly dollar-driven trading that has kept the precious metal pinned near a 2018 nadir.

The dollar’s direction, and thus, gold’s, was expected to be impacted in the very near term by European Central Bank commentary on monetary policy Thursday.

Gold for August delivery on Comex GCQ8, -0.35% fell $4.10, or 0.3%, at $1,227.70 an ounce. Prices had settled at $1,224 as recently as Thursday, the lowest for a most-active contract in about a year. September silver SIU8, -0.28% fell 2 cents, or 0.1%, to $15.565 an ounce.

The ECB isn’t expected to make waves after saying in June said it would wind down asset purchases by the end of this year and suggested then that rate increases won’t take place until late in 2019, a stand that has held back the euro to the benefit of the dollar. The ECB’s statement is due at 7:45 a.m. Eastern Time, followed by Mario Draghi’s news conference about 45 minutes later.

Ahead of that readout, the ICE U.S. Dollar Index DXY, +0.08% a measure of the U.S. currency against a basket of six major rivals, edged up about 0.1% at 94.29.

A stronger dollar can make commodities priced in the currency more expensive compared with those using other monetary units. Silver is off 9.5% so far this year, while gold futures are down about 6.4% in 2018. Meanwhile, after declining 9.8% during 2017, for its worst annual performance since 2001, the dollar index again started the year on the back foot. But since a mid-April nadir, the so-called DXY has rallied nearly 6% through a recent peak of 94.51 hit mid-July.

Read: ‘Death cross’ forms in gold for first time since 2016, even as stock market slumps

SPDR Gold Shares GLD, +0.55% the largest exchange-traded fund to invest directly in physical gold, was down 0.3% early Thursday.

SPDR holdings have been trending lower since the end of April but interest in the contracts remains strong, Bloomberg data show. It is a retreat pinned in part on higher U.S. interest rates, which highlight the trade-off of holding nonyielding gold that costs money to store and insure. The Federal Reserve raised interest rates in June for the seventh time since December 2015. Market expectations, in large part based on Fed signals, are for two more hikes this year. The 10-year Treasury note TMUBMUSD10Y, -0.37% neared another yield test of 3% earlier this week, representing a six-week rate peak, before pulling back only slightly.

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Some analysts question gold’s ability to remain under this degree of pressure.

“We expect the U.S. dollar strength, which has weighed on gold’s performance in recent months, to dissipate during the second half of 2018,” said Trey Reik, senior portfolio manager at Sprott Asset Management. “Fed tightening is already pinching global liquidity and projections for a year-over-year $300 billion increase in second-half Treasury issuance will refocus consensus on grim realities of the deteriorating U.S. fiscal position. The domestic economy is not all it is cracked up to be.”

Reik said a buyback-driven rally in the stock market points to its fragility, as does market breadth that he says is narrowly focused on tech shares.

“While imbalances and fragilities continue to mount in traditional asset markets, gold’s portfolio insurance value is being priced remarkably cheaply. This is frequently a signal that market dynamics are about to change,” he said.

In fact, metals prices were largely stable on Wednesday even as riskier assets, against which metals typically trade inversely, gained when President Donald Trump and European Union President Jean-Claude Juncker made preliminary progress on trade.

Elsewhere on Comex, September palladium PAU8, +0.34% advanced $4.60, or 0.5%, to $932.90 an ounce Thursday, while October platinum PLV8, +0.31% rose by $3.10, or about 0.4%, to $842.80 an ounce. September copper HGU8, +0.11% meanwhile, added less than a cent, or 0.1%, at $2.8225 a pound.

MarketWatch

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