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Metals Stocks: Gold falls as dollar strength sets prices up for the lowest finish in over a week

Gold futures decline on Friday, with strength in the U.S. dollar helping to set prices up for their lowest finish in more than a week. Read More...

Gold futures declined on Friday, with strength in the U.S. dollar helping to set prices up for their lowest finish in more than a week.

Prices have been pressured lower in part by solid gains in the U.S. dollar index on Friday, as well as some more “routine” profit taking from shorter-term futures traders, said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.

The ICE U.S. Dollar Index DXY, +0.52%, a measure of the currency against a basket of six major rivals, rose 0.5% Friday, on track for a weekly rise of 0.4%. A stronger dollar can weigh on commodities priced in the currency, making them more expensive to users of other currencies.

Gold for August delivery GC00, -0.65% GCQ21, -0.65% fell $11.80, or 0.6%, to $1,884.60 an ounce on Comex Friday, poised for the lowest settlement since June 3, FactSet data show. Prices based on the most-active contracts traded down by about 0.4% for the week.

July silver SIN21, +0.98% SI00, +0.98% rose 27.9 cents, or 1%, to $28.31 an ounce, trading 1.5% higher for the week.

Gold rose modestly on Thursday after data showed U.S. inflation continued to run hot in May, though the yellow metal, traditionally seen as an inflation hedge, didn’t initially find support on the news.

Gold “fell initially on surging U.S. inflation, but found support from falling U.S. Treasury yields,” said Sophie Griffiths, analyst at OANDA, in a note. Yields falling on rising inflation appears counterintuitive, she said, “but as inflation is surging interest rate expectations are not, which is a sweet spot for gold.”

Read U.S. Treasury yields fall despite higher inflation: Here are some reasons why

The Federal Reserve’s response to record prints in consumer-price index (CPI), producer-price index (PPI) and the personal-consumption expenditures price index (PCEPI) “has been that this current inflation spike was expected, but that it would be transitory, resulting in the Fed continuing its aggressively accommodative monetary policy,” said Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust BAR, -1.22%.

The central bank’s response supports gold prices in two ways, he told MarketWatch. “It actively seeks to maintain extremely low (negative) real rates, eliminating the opportunity cost of holding gold, while at the same time increasing U.S. dollar devaluation concerns.” It also “increases concerns of inflation beyond the Fed’s expectations, potentially putting the Fed ‘behind the 8 ball’, adding to gold demand as a haven investment.”

The popular SPDR Gold Shares ETF GLD, -1.18% was trading just above a “tactical decision point at $174.66 to $172.91,” wrote John Kosar, chief market strategist at Asbury Research, in a Thursday note.

GLD closed Thursday at $177.74, and traded down by 1% in Friday dealings, poised for a weekly loss of 0.6%.

A major uptrend must resume from that area for it to remain valid, Kosar said. If support holds, the ETF faces overhead resistance at $182.40 and $194.45, he said, while a fall through support at $174.66 to $172.91 “would warn that GLD’s previous February-April major downtrend is resuming.”

Rounding out action on Comex, July copper HGN21, +1.36% tacked on 1.3% to $4.54 a pound, prompting prices to turn up by about 0.3% for the week.

“Copper prices continue to react to China’s implementation of price controls to prevent ‘unreasonable’ increases in the price of copper,” said GraniteShares’ Klearman. Wednesday, following reports of much higher-than-expected increases in China’s producer prices, China re-emphasized its plans to closely watch and supervise commodity prices, he said.

July platinum PLN21, +0.87% rose 1% to $1,157.30 an ounce, still down 0.6% from the week-ago finish, while September palladium PAU21, +0.44% traded at $2,791 an ounce, up 0.5%, trading down 1.8% for the week.

With increased focus on renewable and sustainable energy demand, “the dynamics may be in place for platinum to outperform palladium,” said Klearman.

“Platinum is used as a catalyst in hydrogen fuel cells, providing potential for increased platinum demand,” he said. “Palladium’s main source of demand comes from its use in automobile catalytic converters. The push to electric vehicles may affect that demand.”

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