Gold slips as dollar rises after strong US data
London — The price of gold eased on Friday from a seven-week high touched in the previous session, as strong US retail sales drove the dollar and US bond yields higher, but was still on track for a third straight weekly gain.
The trigger for losses after New York opened was strong US economic data, which reinforced the prospect of the Federal Reserve raising rates this year, perhaps sooner than previously expected, traders said. That boosted the dollar, which makes dollar-denominated commodities more expensive for holders of other currencies. It also sparked a sell-off in treasuries that drove 30-year bond yields above 3%, making them cheaper and more lucrative for those looking to invest in risk-free assets. Gold is also seen as a risk-free asset, but it earns nothing and costs money to store and insure.
Spot gold was down 0.1% at $1,194.62 an ounce by 3.38pm GMT, having fallen as low as $1,188.04 after the US data was published. It was still up 1.9% on the week. US gold futures were down 0.4% at $1,194.80.
The gold price has risen 6.5% since a mid-December low, and touched $1,206.98 on Thursday to reach its highest level since November 23, after President-elect Donald Trump failed to elaborate on his plans to cut taxes and boost infrastructure spending.
"There’s clearly plenty of new long positioning that has come into the market and at these (price) levels there’s room to take profit," said Mitsubishi analyst Jonathan Butler.
Higher gold prices depressed physical sales in Asia this week. In India, the world’s second-largest consumer of the metal, higher prices prompted retail buyers to postpone purchases for wedding season. Investors were looking ahead to Trump’s inauguration on Jan.
20, when they will again be looking for detail on his plans for the US economy.
"Trump’s economic policies, in particular tax cuts for corporates, could lead to ever-higher equity valuations that divert funds away from bullion," he said.
Analysts at Scotiabank, however, said they expect gold to strengthen further if support at $1,178 an ounce holds.
Several Fed officials on Thursday cautioned that Trump’s fiscal and tax plans could spur a short-term economic boost that would result in longer-run inflation and debt problems, potentially raising demand for gold as an inflation hedge. Among other precious metals, spot silver was flat at $16.76, having hit its highest level in almost a month at $16.92 in the previous session. The metal has gained 1.6% this week. Platinum was up 0.3% at $975.50. It touched a two-month high of $990.10 the previous day. Palladium was 0.4% lower at $753.50.