Gold closes slightly lower as dollar’s jump outweighs Turkey contagion fear

Gold futures on Friday finished the session with a loss for the day and the week, as a sharp jump in the dollar overshadowed growing worries that an escalating currency crisis in Turkey would spill over.

December gold GCZ8, -0.06%  fell 90 cents, or less than 0.1%, to settle at $1,219 an ounce. It traded as low as $1,213.10 and as high as $1,224.90 intraday. The contract logged a 0.3% weekly decline.

Global markets stumbled following a Financial Times report that the European Central Bank is growing more concerned about exposure of European banks to Turkey’s woes. The Turkish lira USDTRY, +15.8464%  plunged to its lowest in a year against the U.S. dollar on Friday.

The U.S. currency has drawn global buying interest Friday as a shelter from an economic crisis in Turkey and market volatility kicking up in Russia. Gold, too, has historically had a role as a haven asset in times of global market turbulence. Instead, the precious metal’s inverse relationship to a firmer dollar, boosted in large part by rising U.S. interest rates relative to other major economies, has held the upper hand recently, as it did again on Friday.

“Momentum is still bearish for gold,” said Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi in emailed comments to MarketWatch. “Technically comex gold December needs to trade over $1207 till next week to be in bullish zone,” he said. Karnani said a total collapse of global financial markets pegged to Turkey may also hurt gold, at this point.

A likely jump in the dollar would be the basis of Karnani’s argument that gold would decline amid escalation of problems in Turkey. Indeed, the buck has recently drawn strong haven buying of late, pulling prospective buyers away from bullion among investors seeking protection from political crisis and uncertainty.

The ICE U.S. Dollar Index DXY, +0.74%  was up nearly 1% at 96.352 Friday, hitting a roughly one-year high. And the 10-year Treasury note yield TMUBMUSD10Y, -1.86%  tumbled to 2.86%, a day after marking its largest one-session yield decline since July 3. U.S. stocks finished firmly lower.

“Since gold is also denominated in dollars, a strengthening greenback renders the yellow metal less attractive for investors using foreign currencies,” said Marios Hadjikyriacos, market strategist with brokerage XM. “That said, considering how much the dollar has soared since yesterday, gold has been holding up relatively well, admittedly, with the area around $1,200 providing notable support.”

Russia’s market volatility added to the global theme. Newly announced U.S. sanctions—and the potential for a second round of actions in 90 days—roiled Russia’s currency and blue-chip stocks as the country braced for further economic pain amid uncertainties over the Trump administration’s commitment to enforcement. In Moscow, the ruble USDRUB, +1.4694%  shed as much as 5% against the dollar on Thursday and stock averages there plunged as much as 9%.

Gold firmed slightly after a reading on consumer-price inflation came in hotter than expected and showed a continued uptick for particular economic hot spots. Inflation data poses a mixed scenario for gold. Short term, it is likely to keep the Fed’s hand on the rate-hike lever, a gold-negative development; longer term, gold often serves as a hedge against inflation’s corrosive effects on other assets.

Government data showed that the 12-month rate of core inflation rose to 2.4%, the highest rate since September 2008. Financial markets continue to watch for any evidence that might knock the Fed off its projected path to raise interest rates twice more this year and three times next year. The CPI data keep those Fed projections in place.

Around other trading, September silver SIU8, -0.89% fell 16.7 cents, or 1.1%, to $15.295 an ounce. It marked a 1% weekly fall, according to FactSet data and has declined 8.7% over the past three months.

A popular metals exchange-traded fund, the SPDR Gold Trust GLD, -0.04% finished Friday trade flat, and declined by 0.2% for the five-day period. The comparable silver ETF, the iShares Silver Trust SLV, -0.76% traded down 0.8%, and fell about 0.7% for the week.

September copper HGU8, -0.78% fell 2.3 cents, or 0.8%, to $2.7425 a pound. For the week, copper lost 0.9%. October platinum PLV8, -0.50% fell $4.50, or 0.5%, to settle at $829.60 an ounce, while September palladium PAU8, +0.28% fell $2.70, or 0.3%, to end at $901.10 an ounce.

For the week, platinum futures declined by 0.9%, while those for palladium finished with a weekly drop of 1%.

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