Gold price slips as the dollar attempts rebound from sharp weekly slump

New York (Aug 27)  Gold prices pulled back early Monday after scoring their first weekly advance in nearly two months through Friday, when the U.S. dollar retreated for the week after an update on the Federal Reserve’s interest-rate stance.

The near-term fortunes for the precious metal and the U.S. currency had reversed again by Monday morning when December gold GCZ8, -0.08%  fell $3.10, or 0.3%, at $1,210.10 an ounce as a leading dollar index DXY, -0.03%  edged up by 0.1% to 95.24. The two assets do typically trade inversely.

December gold on Friday added $19.30, or 1.6%, to settle at $1,213.30 an ounce—for its highest finish in three weeks and largest one-day percentage climb since March, according to FactSet data based on the most-active contract. Gold logged a gain of about 2.5% for the week.

The popular indexed measure of the buck against six rivals was down 1% for last week, which would be its worst week since February. It is still up 0.7% for August so far as rising interest rates increase the opportunity cost of holding nonyielding gold, while boosting the dollar, in which gold is priced.

Federal Reserve Chairman Jerome Powell, at the annual Fed symposium in Jackson Hole, Wyo., said gradual U.S. interest-rate hikes remain appropriate and there was no risk to the economy overheating. He also said he was prepared to do “whatever it takes” if inflation becomes unanchored to the upside or downside “or should crisis threaten again.”

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One of the bigger unknowns for the economy is trade and tariffs. The Wall Street Journal reported that the U.S. and Mexico were close to reaching an agreement on key issues holding back a renegotiation of the North American Free Trade Agreement.

Analysts had been watching gold’s ability to hold the $1,200 line after the market had tilted decidedly bearish based on short positions, or bets that an asset’s price will fall.

“The fact that market participants had previously been very pessimistic towards gold is also likely to have contributed to the price rise [last week],” said analysts at Commerzbank, led by Carsten Fritsch, in a note. They sited Commodity Futures Trading Commission stats that showed net short positions were further expanded to 90,000 contracts in the week to August 21.

“As in the weeks before, it was mainly a question of short positions being increased while longs remained virtually unchanged. Some of the short positions are likely to have been covered at the end of last week, especially after the price exceeded the $1,200 mark,” the analysts said.

As for the demand side, the analysts are keeping tabs on India. The All Kerala Gold & Silver Merchants Association in the state of Kerala, the country’s biggest gold-buying state, expects gold demand to plummet by half in September due to the flood damage, the Commerzbank team noted.

Among exchange-traded funds, SPDR Gold Shares GLD, +1.75%  fell 0.1% early Monday after trading just under 2% higher for last week. The VanEck Vectors Gold Miners ETF GDX, +2.65% was up 0.4% after it tacked on roughly 2% last week.

September silver SIU8, -0.16%  fell 6 cents, or 0.4%, to $14.73 an ounce. The contract climbed 1.7% Friday and was up 1.1% for last week.

High-grade copper for September delivery HGU8, +0.30% was little changed near $2.699 an ounce after it rose around 2.7% last week. October platinum PLV8, +0.35% fell $1, or 0.1%, to $788.40 an ounce, after a weekly rise of 1.6%, while September palladium PAU8, +0.69%  added $1.50, or 0.2%, to $930.10 an ounce after it jumped 5.8% last week.

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