Gold starts July on weak footing after first monthly drop since March
New York (July 3) Gold prices fell Monday, adding to what was the precious metal’s first monthly decline since March as a steadying U.S. dollar rebounded from last week’s sharp loss and indications for stock gains weighed on haven investments.
August gold on Comex GCQ7, -0.79% fell $8.70, or 0.7%, to $1,233.50 an ounce. The contract settled Friday at $1,242.30, leaving it down about 1.1% for the week and 2.6% for the month. The June loss snapped what had been the longest run of monthly gains since 2010Still, for the first six months of the year gold was up nearly 8%, according to FactSet data tracking the most-active contracts.
September silver SIU7, -1.15% joined in gold’s retreat. It tumbled 16 cents, or 1%, to $16.465 an ounce. For June alone it fell 4.4%, but the white metal has notched a 4% advance so far this year.
The dollar, as measured by the ICE U.S. Dollar Index DXY, +0.50% was up about 0.5% on Monday. Year to date, however, it was down over 6%. A weaker U.S. currency makes dollar-priced gold more attractive to investors using another currency.
In exchange-traded funds, the gold-focused SPDR Gold Shares GLD, -0.62% fell 0.6% premarket. The ETF has gained some 7.8% for the year’s first half. The VanEck Vectors Gold Miners ETF GDX, +0.59% fell 1.3%, while the iShares Silver SLV, -1.08% dropped 1%.
From here, “gold currently looks vulnerable,” UBS Group AG analyst Joni Teves said in a note. “Higher yields and market participants digesting a hawkish shift in tone among key central banks of late, while equities stay resilient around all-time highs,” are negative factors for the metal.
Last week’s sharp, nearly global-wide selling in government bonds, fueled by concerns that global central bankers may be inclined to end a protracted period of accommodative policies, rattled markets. The Federal Reserve already ended its economy-juicing bond-purchase program in 2014 and has lifted benchmark interest rates, albeit slowly, four times since 2015. But it had largely acted alone.
Now, fears that central banks in Europe and the U.S., some of the largest buyers of government bonds, may be shifting from a dovish to a more hawkish posture, has sent investors out of bonds and delivered a sudden jolt higher to yields, which move inversely to prices. Higher yields tend to increase the opportunity cost of purchasing commodities that don’t offer a yield to assets, like bonds.
The Fed targets a 2% annual inflation rate, but inflation recently has been stubbornly low, since pushing above the Fed’s threshold in February for the first time in nearly five years. Gold’s price tends to benefit from rising inflation because it is often viewed as a hedge against climbing prices.
Rounding out action on Comex, September copper HGU7, -0.66% fell 2 cents, or 0.6%, to $2.695 a pound, with futures around 8% higher year to date. October platinum PLV7, -0.87% fell $7, or 0.8%, to $919.40 an ounce—with prices up 2.3% for the first half of the year. September palladium PAU7, +0.41% rose $4.30, or 0.5%, to $840.95 an ounce. It has climbed about 22.5% year to date—among the biggest commodity gainers of the year.
Signs of improved economic growth in Europe, China and elsewhere have underpinned this segment of the metals market.
“The latest [purchasing manager index] readings do help to justify some of the recent strength in industrial metals prices, although the depreciation of the dollar has also played a role. Coal prices have also ticked up but this may have more to do with exceptionally hot weather in China and the likelihood of unseasonally high electricity demand rather than trends in manufacturing activity,” said Caroline Bain, chief commodities economist with Capital Economics, in a note.
“However, in our view, the upturn will prove short-lived. Policy tightening and the slower pace of credit creation, in particular, take some time to feed through to activity but are likely to act as brakes in the second half of the year,” she said. “This view underpins our forecast that the prices of most industrial metals and coal will ease back from here.”
Source: MarketWatch
