Gold rose on Friday, climbing above the prior session's 10-1/2 month low, as the dollar and U.S. stocks dipped at the end of a volatile week highlighted by the Federal Reserve's signal that there could be more rate hikes than previously expected in 2017.
Spot gold was up 0.6 percent at $1,135.16 an ounce by 2:30 p.m. EST (1930 GMT). The metal hit $1,122.35 on Thursday, its weakest since Feb. 2 and is down 2 percent so far this week, leaving it on track for its sixth consecutive weekly loss.
U.S. gold futures settled up 0.7 percent at $1,137.40.
Gold prices rose to session highs after U.S. officials told Reuters that a Chinese warship had seized an underwater drone deployed by a U.S. oceanographic vessel in the South China Sea.
"It gave gold a little bit of a boost but it was a knee jerk spike. It looks like both sides are trying to tweak each other, if you will," said Bill O'Neill, co-founder of LOGIC Advisors.
While there is still some optimism in the marketplace. Investors note that momentum continues to favor the downside. Chris Beauchamp, market analyst at IG Markets, said that gold’s efforts to find support has been “fruitless.”
He said that he is watching the next support level at $1,122 an ounce, a break here could ultimately lead to a push below $1,100, with the next support level at $1,097.
On the upside, Beauchamp said that gold would have to push past at least $1,140 to relieve some of the near-term selling pressure.
In a recent note to clients, Russel Brown, strategist at Scotiabank said he sees potential for gold to fall to $1,100 an ounce and only a move back above $1,172 will negate the renewed bearish sentiment in the marketplace.
George Gero, managing director with RBC Wealth Management, and Ira Epstein, director of the Ira Epstein division of Linn & Associates, both look for gold to benefit from short covering. Kitco technical analyst Jim Wyckoff also looks for a bounce, calling the market “oversold” from a technical standpoint.
Gold has plunged over 11 percent in the weeks since the U.S. election, and some say the losses will accelerate.
After briefly rising above $1,375 per troy ounce in early July, gold has given back nearly all of its gains on the year. At its Thursday lows of $1,124, gold was just 5.6 percentage points — $64 — away from wiping out all its gains on the year.
If gold does finish 2016 in the red, it would mark the fourth-straight year in which the metal has logged a loss. The last time it saw such a streak 1988 to 1992.
It’s surprising how quick sentiment can change in five months, especially as the U.S. prepares to welcome a new President as Bank of America Merrill Lynch (BoAML) says it is now “cautious” on gold for 2017.
Bank of America Merrill Lynch has downgraded its gold forecast, expecting to see prices hit $1,200 an ounce by mid-2017Wednesday, in his presentation at the BoAML 2017 Year Ahead Press Conference., Francisco Blanch, head of Commodities and Derivatives, said that a stronger U.S. dollar and higher bond yields will be two major headwinds for the yellow metal next year.
In its updated forecast, BoAML it expects gold to trade around $1,200 an ounce by mid-2017, “implying limited upside near-term.” The Bank’s forecast is not far from current prices as February gold settled the session at $1,137.40 an ounce, up 0.67% on the day.
Reference: Kitco, Reuters
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