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Dec 28, 2016

MarketWatch | Gold Futures - December 28, 2016: Gold Futures Try For Two-Week Highs Even as Dollar Gains

Rachel Koning Beals

Gold futures squeezed out a narrow gain Wednesday, enough to keep the contract flirting with two-week closing highs, even as the dollar also firmed.

Gold has launched a tepid advance to start the holiday-shortened week after ending with a seventh straight weekly decline before the Christmas weekend. That was gold’s longest weekly losing streak in more than 12 years, accumulated as the U.S. currency stretched to 14-year highs.

Early Wednesday, gold futures for February delivery GCG7, +0.03% rose 40 cents, or less than 0.1%, to $1,139.20 an ounce in light volume. A close at this level would be the highest since December 14.
Exchange-traded funds tracked the metal higher. The SPDR Gold Trust GLD, +0.58% rose 0.1% premarket, while the VanEck Vectors Gold Miners ETF GDX, +2.74% advanced 0.7%.

The ICE Dollar Index DXY, +0.40% which typically moves inversely to gold, was up 0.3% at 103.35. This dollar gauge, which measures the strength of the buck against a basket of six currencies, last week hit 103.25, marking its highest level since December 2002, according to FactSet data.
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Because gold is priced in dollars, any advances for the greenback make the metal more expensive for other currency holders, presumably lowering demand. Additionally, rising yields make it more attractive to invest in assets that offer interest, away from precious metals.

For 2016, gold and silver are still poised for their most robust gains since 2012 thanks to an early-year surge when global economic uncertainty pared the interest-rate outlook. Gold is headed for a roughly 6% advance and silver is up 14% for 2016.

Yet gold has dropped in December as Treasury yields rose when President-elect Donald Trump pledged stimulus measures. That outlook prompted upward revisions to expectations for additional monetary tightening by the Federal Reserve, which is bullish for the U.S. dollar. The Fed itself, in its so-called dot-plot forecasts, has penciled in three rate increases in 2017, subject to revision.

“It was the victory of Donald Trump that has taken the shine off the metal and since then, we have seen massive selling pressure as traders are anticipating [a] steeper path for U.S. interest rates,” said Naeem Aslam, chief market analyst with ThinkMarkets, in a commentary.
“It does not mean that a Trump presidency does not have any threats for the economy, because no one knows if he can establish a good working relationship with China, the second biggest economy of the world. Any adverse headlines on this in 2017 could support the metal,” Aslam added.
Read: Trump’s tough China talk fails one key reality check
Longer term, gold could retain some appeal as an inflationary hedge should the stimulus plans ignite unexpected inflation that leaves the Fed behind the curve. And continued uncertainty around any economic fallout from the U.K.’s split with the European Union could underpin the metal as a haven investment.
“We maintain our long-term call that the path of least resistance for gold is towards the upside,” Aslam said. “We will not be surprised if gold touches $1,500…if Donald Trump underdelivers and cannot have a fruitful relationship with other major economies of the world.”

In other metals trading Wednesday, March silver SIH7, -0.49% was down 8 cents, or 0.5%, at $15.91 an ounce. Last week, the metal slid 2.4%, for a back-to-back week of losses.

High-grade copper HGH7, -0.66% fell 2 cents, or 0.8%, to $2.50 a pound. January platinum PLF7, -0.22%  was down $1.70, or 0.2%, to $902.40 an ounce. March PAH7, +0.43% palladium traded down $2.15, or 0.3%, at $671.65 an ounce.