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January 11, 2018

Gold Prices Steady Near 4-Month Peak

Alaric Securities

Gold prices were little changed on Thursday, sticking to the almost four-month high hit this week, as a stabilizing dollar kept the yellow metal’s move in check.

February gold GCG8 was up about $2.20, or about 0.1%, at $1,321.70 an ounce. It settled Wednesday at $1,319.30 after tapping a high of $1,328.60—the highest intraday level since Sept. 15, FactSet data showed. The exchange-traded SPDR Gold Shares GLD was up 0.1% premarket.

The ICE U.S. Dollar Index DXY — a gauge of the greenback against a half-dozen rivals—edged up 0.1% after declining in the previous session. Because most commodities are priced in dollars, weakness in the currency can provide support for assets like gold, boosting their appeal among buyers using stronger currencies. Conversely, a firmer dollar tends to equate to weaker gold trading.

The yellow metal typically moves inversely to Treasury yields, although it has broken that relationship during the big move for yields this week. Yields relinquished most of Wednesday’s advance as a Chinese regulator on Thursday denied a report that Beijing will scale back or halt its purchases of U.S. government debt.

The yield for the 10-year benchmark note TMUBMUSD30Y slipped 2.1 basis points to 2.5353%, falling for the first time in six sessions. On Wednesday, the yield was trading around the highest level since March last year. Yields and prices move inversely.

Bond market moves can ripple throughout other assets, with investors eyeing shifts in government paper after what has been a lengthy bond-market bullrun, which has resulted in prices climbing and yields, which move in the opposite direction, falling.

Investors have been weighing persistently low inflation, as rising prices eat away at a bond’s fixed value, against global central bank signals for higher interest rates, which can stoke selling in outstanding bonds as investors anticipate richer-yielding offerings.

“Recent history tells us that low inflation rates across the globe are unlikely to revive at anything other than a languid pace in 2018, but there can be no denying a number of increasingly positive forecasts and a growing number of central banks making tentative plans to rein in some of the stimulus behind them,” said Neil Mellor, senior currency strategist with BNY Mellon, in a note. “Gold bugs might well take note.”

A reading on U.S. wholesale-level inflation will hit Thursday morning, while the latest update on consumer inflation is due Friday.

Mellor sees some risks to this outlook, including a larger-than-expected rally in the dollar, overzealous central-bank policy restraint and geopolitical risks, plus the opportunity cost of holding a return-free asset, such as gold, in the face of rising U.S. interest rates.

“However, if the global economy has a diminished need for lax policy, then we must at least consider the possibility of a normalization in inflation, and a traditional role for gold [as an inflation hedge],” Mellor said.

In other metals trading, March palladium PAH8 fell 0.3%, to $1,074.00 an ounce. It cleared $1,098 this week for a settlement that was the highest on record, based on FactSet data going back to 1984.

April platinum PLJ8 meanwhile, gained 0.3% to $981.70 an ounce.

March silver SIH8 slipped 0.1% to $17.020 an ounce, while the iShares Silver Trust SLV held steady. Copper for the same month HGH8 tacked on 0.4% to $3.2485 a pound.

Article originally published by Rachel Koning Beals at