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Metals Stocks: Gold settles at a more than 1-week low, but inflation remains ‘economic wind of a commodity wildfire’

Gold futures settled at their lowest in more than a week on Friday, on the back of a sharp drop in oil prices and a rise in the U.S. dollar to around the highest level in about 16 months.

“The steep declines in crude oil spooked the raw commodity sector today, including the metals and gold,” Jim Wyckoff, senior analyst at Kitco.com, told MarketWatch. “Crude is the leader of the raw commodity sector, and now it looks like it has topped out, at least for the near term.”

See: Oil drops to a 7-week low on fears rising Europe COVID cases will weigh on demand

A higher U.S. dollar index was also a “daily negative” for the metals, said Wyckoff.

The ICE U.S. Dollar
DXY,
+0.51%

was up 0.5%, trading around the highest level since July 2020, as Austria has announced a national lockdown that could stretch to 20 days to help mitigate the spread of COVID-19, and Germany, Europe’s largest economy, isn’t ruling out similar measures to tamp down the spread of the deadly pathogen.

A rising dollar can hurt demand for assets priced in the currency, making them more expensive for buyers using weaker monetary units. On top of that, the dollar tends to attract interest during times of uncertainty about the global economy, weighing on bullion and other commodities.

December gold
GCZ21,
-0.56%

GC00,
-0.56%

fell by $9.80, or 0.5%, to settle at $1,851.60 an ounce — the lowest most-active contract settlement since Nov. 10, FactSet data show.

Reports of rising cases of COVID and lockdowns in Europe were dimming appetite for risk-taking on Wall Street. That provided support for the U.S. dollar — and boosted gold in early dealings, as both are viewed as safe-haven assets.

“Gold seems to be waiting for a fresh directional catalyst as markets await more clues about how the Federal Reserve will manage rising inflation,” said Lukman Otunuga, manager, market analysis, at FXTM.

Longer term, gold will continue to face “multiple headwinds in the form of dollar strength and the [Fed’s] tapering timetable,” he told MarketWatch.

Meanwhile, silver for December delivery lost 12 cents, or 0.5%, to settle at $24.781 an ounce.

For the week, gold declined 0.9%, based on the most-active contract, while silver suffered a weekly drop of 2.2%.

Also see: The spotlight shines on ‘green’ metals such as lithium and cobalt as EV popularity climbs

Gold and silver have been “relatively tepid this week as all eyes are glued to more short-term clues regarding rate-hikes, which I don’t believe we’ll see in 2022,” Adam Koos, president at Libertas Wealth Management Group, told MarketWatch.

As the market heads into the year-end holidays, Koos said he expects to hear “less news out of Washington regarding interest rates, but more evidence from the economy and headlines that provide confirmation that the inflation and commodity wildfire is spreading, with very little Fed power available to stop the expansion.”

“Inflation is the economic wind of a commodity wildfire,” said Koos, and these hard assets such as gold “are on a tear, and I don’t see that ending anytime soon.” 

Also on Comex Friday, December copper
HGZ21,
+2.20%

tacked on 2.4% to nearly $4.408 a pound, but still ended 0.9% lower for the week.

January platinum
PLF22,
-2.05%

settled down by 1.9% at $1,036 an ounce, with prices losing roughly 4.9% for the week, while December palladium
PAZ21,
-3.29%

lost 3% to $2,073.20 an ounce, for a weekly loss of 2.1%.

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