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Gold futures settled at the lowest level of the year, just a day after finishing at a monthly high, as the benchmark U.S. dollar index briefly touched an 11-month peak, weighing on assets pegged to the monetary unit.
“Looks like the hot money has thrown in the towel,” said Adrian Ash, director of research at BullionVault. “Ironically that has caused the very spike in volatility they just gave up waiting for.”
But “volatility was overdue in the gold market,” he said. Gold prices had “failed to jump on 2018’s slew of political risks.”
August gold dropped $29.80, or 2.3%, to settle at $1,278.50 an ounce. Based on the most-active contract, prices settled Thursday at their highest in roughly a month. On Friday, they marked the lowest settlement since December and lost roughly 1.9% for the week.
The move comes after President Donald Trump announced tariffs on $50 billion worth of Chinese imports.
“Despite some risk aversion in the marketplace [Friday], the gold market has instead chosen to focus on the recent strong rally in the U.S. dollar index, which today scored an 11-month high,” said Jim Wyckoff, senior analyst at Kitco.com.
The ICE U.S. Dollar Index a measure of the dollar against a half-dozen major currencies, traded as high 95.131, a level not seen since July 2017, boosted by lingering U.S. economic optimism. Data Friday showed the Empire State manufacturing survey rose 4.9 points in June to a reading of 25, the highest since October, while the University of Michigan consumer-sentiment index in June rose to a 99.3 reading.
The dollar index has, however, eased back to 94.789, little changed in Friday dealings. The index, heavily weighted toward euros, was up 1.3% this week.
“After the big breakdown in the EUR/USD exchange rate yesterday, the positively-correlating gold was always going to struggle to sustain its gain,” said Fawad Razaqzada, technical analyst at Forex.com.
Gold’s “inability to hold above the $1,307 resistance level and the subsequent breakdown below the psychologically-important level of $1,300 has led to follow-up technical selling,” he said. “The breakdown undoubtedly triggered a cluster of stop sell orders which exacerbated the breakdown.”
The yellow metal had finished Thursday above the psychologically significant level at $1,300, a day after the European Central Bank spelled the end of its easy-money policies but did so at a more cautious pace than had been anticipated, driving the euro on Thursday to its worst one-day loss against greenback since 2016.
BullionVault’s Ash said fundamental gold demand has weakened during a seasonally slow period for the commodity after holidays in India and other parts of Asia that tend to drive up appetite for bullion.
“Investor demand has really gone soft,” Ash told MarketWatch.
Separately, on Friday, the Bank of Japan left its monetary policy steady, but investors were focused on its comments on consumer-price inflation. That followed comparatively more hawkish tones set by the ECB, which held its benchmark rates in check Thursday, but laid out a timetable to eventually tighten policy sometime next year. The Federal Reserve lifted rates Wednesday by a quarter-point for a seventh time since December of 2015 to a range between 1.75% and 2%.
A rising rate environment tends to be bearish for gold which doesn’t offer a yield.
In other metals trading, July silver gave up 4.5% to $16.48 an ounce, fueling a loss of around 1.6% for the week.
July copper shed 2.4% to $3.145 a pound, for a weekly loss of about 4.7%. July platinum fell 2.5% to $887.80 an ounce, ending 2% lower on the week, while September palladium settled down 2.5% at $981.80 an ounce, for a weekly decline of 2.4%.
Among exchange-traded funds, the SPDR Gold Shares fell 1.8% and the iShares Silver Trust lost 2.2%, while the VanEck Vectors Gold Miners shed 1.9%. All three ETFs were set to post declines for the week.