Gold prices inch higher, but pop in U.S. dollar caps metal’s gain

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Gold futures rose modestly on Friday, with the advance for the precious metal likely capped as a measure of the U.S. dollar was surging back to around its highest level in about 16 months.

Reports of rising cases of COVID and lockdowns in Europe were dimming appetite for risk taking on Wall Street, but helping to support interest in gold and the dollar, which are both viewed as safe-haven assets.

The ICE U.S. Dollar
DXY,
+0.28%
was up 0.4% and around the highest level since July 2020, as Austria has announced a 20-day national lockdown to help mitigate the spread of COVID-19, and Germany, Europe’s largest economy, is considering similar measures to tamp down the spread of the deadly pathogen.

A rising dollar can hurt demand for assets priced in the currency, making them more expensive for buyers using weaker monetary units. On top of that, the dollar tends to attract interest during times of uncertainty about the global economy, weighing on bullion and other commodities.

Still, December gold
GCZ21,
+0.13%

GC00,
+0.13%
was able to gain some support on Friday, up $2.80, or 0.2%, at $1,864.20 an ounce, following a 0.5% decline on Thursday.

Other than the burst of action mid-week, gold prices have traded within a tight range, with support at $1,850 and resistance around $1,870, said Lukman Otunuga, manager, market analysis, at FXTM. “Gold seems to be waiting for a fresh directional catalyst as markets await more clues about how the Federal Reserve will manage rising inflation.”

Longer term, gold will continue to face “multiple headwinds in the form of dollar strength and the [Fed’s] tapering timetable,” he told MarketWatch.

Meanwhile, silver for December delivery was up 9.5 cents, or 0.4%, to trade at $24.995 an ounce, after falling 1.1% on Thursday.

For the week, gold is on track to decline 0.2% for the week, based on the most-active contract’s settlement last Friday, while silver was set for a weekly drop of 1.4%.

Also see: The spotlight shines on ‘green’ metals such as lithium and cobalt as EV popularity climbs

Gold and silver have been “relatively tepid this week as all eyes are glued to more short-term clues regarding rate-hikes, which I don’t believe we’ll see in 2022,” Adam Koos, president at Libertas Wealth Management Group, told MarketWatch.

Both metals have seemingly ignored the rising U.S. dollar — “which has been interesting, as one would expect that long-term, continued inflation would put downside pressure on the dollar,” he said. “This is one of the biggest clues that support a null hypothesis, that perhaps the inflation we’re experiencing is, in fact, transitory.” 

Still, as the market heads into the holidays, Koos said he expects to hear “less news out of Washington regarding interest rates, but more evidence from the economy and headlines that provide confirmation that the inflation and commodity wildfire is spreading, with very little Fed power available to stop the expansion.”

“Inflation is the economic wind of a commodity wildfire,” said Koos, and these hard assets such as gold “are on a tear, and I don’t see that ending anytime soon.” 

Also on Comex Friday, December copper
HGZ21,
+2.02%
tacked on 2% to $4.389 a pound, but still traded down by around 1.4% for the week.

January platinum
PLF22,
-1.15%
traded down by 1% at $1,045.80 an ounce, with prices down roughly 4% for the week, while December palladium
PAZ21,
-2.29%
lost 2.4% to $2,086 an ounce, poised for a weekly loss of 1.5%.

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