MW: Gold struggles, but on track to book 2nd weekly gain in a row
Gold futures flipped between gains and losses Friday as the precious metal wrestled with competing forces of slumping global stocks and a U.S. dollar that is exhibiting signs of strength.
Market sentiment in Europe has been dour due to fears that a U.K. referendum, set for June 23, will result in Britain exiting the European Union—a move that might foster instability within the European bloc. Those worries have dragged European stock markets SXXP, -2.27% lower and has trickled over into the U.S., with stock-index futures YMU6, -0.69% ESU6, -0.76% NQU6, -0.88% tipping down.
August gold GCQ6, +0.13% most recently was 20 cents, or less than 0.1%, lower at $1,272.50 an ounce, but the precious metal was on track to post a weekly rise of 2.5%—potentially its best weekly climb since the week ended April 29, when gold ended the period up 4.9%.
Read: A summer panic is starting to brew across markets
The greenback, as measured via ICE U.S. Dollar Index DXY, +0.12% was 0.3% higher on the day, adding to an advance that has seen the dollar gauge push 0.4% higher over the week. A stronger dollar makes assets pegged to the currency, like gold, less attractive to buyers purchasing with other monetary units.
The dollar had been weaker as the odds of a rate increase by the Federal Reserve at its two-day policy meeting next week and in July have dimmed.
“Gold is having an inside day, pausing to consolidate recent gains in the $1,264 to $1,270 range,” said Colin Cieszynski, chief market strategist at CMC Markets.
However, silver futures for July delivery SIN6, +0.33% were shrugging off the strengthening buck to add 4 cents, or 0.2%, putting gold’s sister metal on track to score a 5.8% weekly gain, its best weekly rise in nearly 8 weeks, according to FactSet data.
The exchange-traded fund iShares Silver Trust SLV, +1.60% was off less than 0.1% premarket.
Exchanged-traded gold fund SPDR Gold Trust GLD, +0.56% was up about 0.1% in premarket trade, while miners VanEck Vectors Gold Miners ETF GDX, +1.54% added 0.7% premarket.
Negative rates throughout much of Europe and the launch of an additional quantitative easing measures by the European Central Bank on Thursday, has resulted in sovereign bond yields, which move in the opposite direction of prices in bonds, to record lows. That environment is likely to support appetite for precious metals.
In countries like Germany and the U.K. government bonds are at record lows, meaning lenders aren’t getting much for parking their money.
The bulls will be pleased to see the prior broken resistance at $1200 once again holding up as support. In addition, gold has risen back above the 21-day exponential and 50-day simple moving averages. These moving averages are pointing higher and are above the slower 200-day moving average. Clearly then, the underlying trend is bullish even if gold is effectively still in a larger consolidation.
“Clearly then, the underlying trend is bullish even if gold is effectively still in a larger consolidation” said Fawad Razaqzada, market analyst at Forex.com and City Index.
