Gold pared a third weekly drop as the dollar halted a rally that sent bullion prices to a nine-month low and pushed silver into a bear market.
Bullion’s first gain in four days cut this week’s loss to 2 percent. Prices have tumbled as strong economic data and the prospect of more spending after Donald Trump’s U.S. election win boosted bets for higher interest rates. Investors are selling out of gold-backed funds at the fastest pace in three years.
Gold prices steadied after falling to 9-1/2 month lows on Friday, heading for a third consecutive weekly decline as investors sold on factors including expectations of a U.S. interest rate rise. Spot gold was down 0.03 percent at $1,182.88 an ounce by 2:15 p.m. EST (1915 GMT), after tapping $1,171.21, its lowest since Feb. 8, as funds took profits on short positions. The precious metal has fallen more than 7 percent so far in November, leaving it on track for its largest monthly fall since June 2013.
Gold traders will be watching next week to see if the recent slide in gold prices sparks increased physical demand in key Asian gold-buying nations.
There are signs that this may already be picking up, traders and analysts say. Otherwise, they add, the market’ s main focus will remain on U.S. economic data and Federal Reserve comments for clues on what Fed policymakers will do with U.S. interest rates.
To a great extent, we will be trying to assess what the U.S. Federal Reserve will be saying,” said Bart Melek, head of commodity strategy at TD Securities. A number of officials are scheduled to speak next week, including Vice Chair Stanley Fischer and New York Fed President William Dudley on Tuesday.
After a year of almost uninterrupted bullish bias in precious metals options markets, gold skews (the 'price' of put protection over calls) has exploded to its highest (most bearish) leves since July 2015. As Bloomberg reports, bearish options hedging against a 10 percent price drop in the biggest gold exchange-traded fund cost the most since July 2015 relative to calls betting on a 10 percent jump.
Wall Street looks for gold to recover next week, while Main Street is bearish, according to the weekly Kitco News gold survey.
Henry To, analyst at CB Capital Partners, is among those looking for a bounce.
“Gold’s decline this week was primarily driven by two forces,” To said. “First, as a reaction to a strong dollar, which itself was tied another rise in U.S. interest rates. However, I believe gold’s decline was disproportional to the rise in the U.S. dollar, likely because of low liquidity due to the Thanksgiving holiday week in the United States. This means any selling in gold last week disproportionately drove the price down.
“Second, there have been significant speculative flows into gold since the June 23 Brexit vote, much of which exited over the last several weeks.…Much of the post-Brexit speculative flows have left the markets, and gold should thus stabilize and recover next week.”
Sean Lusk, director of commercial hedging with Walsh Trading, figures some traders with short, or bearish, trades will be buying to book profits and even up positions ahead of month-end.
“We’re a little oversold,” he continued. “It’s a good buy point….Traders will realize long term, there is still a lot of uncertainty out there. This stock-market rally is probably getting overdone and this move (higher) in the dollar is probably getting overcooked too.”
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