Gold futures inched higher on Friday, on track to tally their best weekly performance since November, with prices finding support from overall weakness in the U.S. dollar and declines in U.S. retail sales and consumer sentiment readings.
Investors have been bracing for tighter U.S. monetary policy in the coming months and worrying about how effective central banks will be in combating inflation that is surging above trend.
“While high consumer price index and producer price index releases this week have only strengthened the market’s expectations of a more aggressive [Federal Reserve], there is an underlying sentiment that the Fed will continue to act cautiously,” said Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust
BAR,
“And while the Fed may raise rates more aggressively than previously expected, longer term real rates are struggling to move from negative territory, supportive of gold prices,” he told MarketWatch.
At last check, February gold
GCG22,
GC00,
was trading $1.30, or nearly 0.1%, higher at $1,822.70 an ounce, following a 0.3% decline on Thursday.
Gold prices gained more ground in Friday dealings after data showed U.S. retail sales declined by 1.9% in in December, and a closely-followed gauge of consumer sentiment fell to 68.8 in January form 70.6 in the prior month. December industrial production, meanwhile, slipped by 0.1%.
For the week, gold is looking at a 1.3% weekly gain, which would mark its sharpest weekly advance since the period ended Nov. 12.
March silver
SIH22,
SI00,
however, edged down by 12.7 cents, or 0.6%, to $23.035 an ounce, paring its weekly rise to 2.8%.
Meanwhile, the dollar, as measured by the ICE U.S. Dollar Index
DXY,
was up 0.1% on the session so far but down 0.9% on the week. A weaker greenback can make dollar-priced bullion less expensive to overseas buyers.
“The U.S. currency lost more than 1% in relation to other majors over the course of the week, as the markets, having already priced in the tightening of policies by the [Fed] into the value of the greenback, now shift their focus onto other central banks that haven’t yet started to cut back on stimulus,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a daily note.
Fed Gov. Christopher Waller recently suggested that as many as five interest-rate increases are a possibility in 2022 as the central banks aims to beat back rampant inflation. Though the policy maker said his baseline expectation was for three rate hikes on the year, which is more in line with expectations.
Also on Thursday, Philadelphia Fed President Patrick Harker said expect “a fair amount of tightening in 2022,” during a speech on the economic outlook to a conference sponsored by the Philadelphia Business Journal.
Gold has been relatively resilient in the face of volatile financial markets that are looking at the prospect of higher borrowing costs, which could undercut the value of precious metals but the prospect of perky inflation and errors by central bankers have supported buying, strategists have said.
Precious metals are traditionally viewed as a hedge against inflation.
A rise in Treasury yields, with the 10-year Treasury note
TMUBMUSD10Y,
yielding around 1.74%, also can siphon away appetite for gold, which competes with gold for safe-haven demand and can be perceived as more compelling when rates rise.
But the rise in Treasury yields have failed to move gold prices significantly lower, despite FOMC minutes released last week “telescoping the Fed’s intention to hasten tapering and thus raise rates sooner than previously expected,” said Klearman. So far this year, gold futures are down about 0.3%.
“The current environment, despite a more aggressive Fed, is supportive of gold prices,” he said. “Fear of falling asset prices and longer-term real rates still significantly below zero lend support to gold prices.”
Among the other Comex metals, March copper
HGH22,
fell 2.3% to $4.444 a pound, with prices on track for a weekly rise of 0.8%. April platinum
PLJ22,
added 0.9% to $980.80 an ounce, trading around 2.5% higher for the week, and March palladium
PAH22,
traded at $1,903.50 an ounce, up 0.7% in Friday dealings, but down 0.9% for the week.
