Gold price hovers around 2018 low, poised for weekly skid

June 22, 2018

New York (June 22)  Gold futures on Friday were trading at break-even levels, but set to register a decline for the week as investors focus on expectations for higher rates ahead, a headwind for metals, and U.S. dollars, which have mostly strengthened recently.

August gold GCQ8, +0.04%  was virtually unchanged at $1,270.50 an ounce, and set for a weekly slide of 0.6% based on last Friday’s closing levels. For the month, gold is on track for a month-to-date fall of 2.6%. A popular gold exchange-traded fund, the SPDR Gold Shares GLD, -0.17% meanwhile, is poised for a weekly decline of more than 1% and a decline in so far in June of 2.5%

The yellow metal’s current downdraft comes amid an intensifying spat centered on import tariffs between China and the U.S., the two largest economies in the world, that has commanded the market’s attention due to potential for a more serious dispute between the nation’s to ripple through global markets. Gold traders, however, have mostly dismissed those anxiety-provoking events that normally would be supportive of gold’s price to focus on a stronger buck and the prospect of central bank policy tightening taking hold in key developed markets.

Higher rates and a stronger dollar are headwinds for commodities because they don’t offer a yield and a strengthening buck tends to weigh on assets priced in the currency, making them more expensive for purchasers using other monetary units.

The Federal Reserve last week lifted interest rates for a seventh time since 2015, and Chairman Jerome Powell recently emphasized that the health of the domestic economy warrants further increases to benchmark rates. Meanwhile, European Central Bank President Mario Draghi outlined a path for the eurozone to begin normalizing its monetary policy and roll back crisis-era initiatives, though he signaled that the ECB wouldn’t likely begin raising rates in Europe until later in 2019.

Against that backdrop, the dollar has risen, with the ICE U.S. Dollar Index DXY, -0.24% which reflects the dollar’s strength against a half-dozen rivals, up 0.7% in June and 1% over the past 30 days. The 10-year Treasury note TMUBMUSD10Y, +0.60% often used as a financial benchmark, has been mostly flat this week, but has climbed about 9 basis points, or 0.09 percentage points, since the start of June to about 2.91%.

“Gold is poised to conclude this trading week negatively, as a broadly stronger Dollar and the prospect of higher US interest rates continue to erode appetite for the precious metal,” wrote Lukman Otunuga, research analyst at FXTM in a Friday research note.

“Although prices have attempted to rebound higher today, this has less to do with a change of sentiment towards gold and more to do with dollar weakness amid profit-taking,” he said. The ICE dollar gauge was less than 0.1% lower at 94.67.

In other metals trading, July silver SIN8, +0.51%  gained 9 cents, or 0.6% on the day, but is set for a weekly fall of about 0.4%. A popular silver ETF, the iShares Silver Trust SLV, +0.13% is set to decline by 1.5% for the



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