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Gold Posts Back-To-Back Weekly Loss

June 16, 2017 at 16:20 by Andrew Moran

Gold futures have recorded modest gains on the final trading day of the week, but the yellow metal is on track for back-to-back weekly loss. Gold prices tumbled this week as the Federal Reserve raised interest rates for the third time in six months, which helped make the US dollar post solid gains.

August gold futures rose $1.40, or 0.10%, to $1,255.90 per ounce at 16:01 GMT on Friday. Gold is on track to post the second straight weekly loss of 1.2%.

Silver, the sister commodity to gold, further shed its value at the end of the trading week. July silver futures dipped $0.07, or 0.42%, to $16.64 an ounce. Silver is poised for a weekly loss of 3.2%.

The 100-day moving average for gold sits between $1,246 and $1,250. Analysts note that lower gold prices could provide a buying opportunity for gold bugs, says Joni Teves strategist for UBS in a research note.

It may be initially counterintuitive to think that soft inflation could create upside risks for gold, which has historically been viewed as an inflation hedge. However, we think the read-through for rates and Fed policy is important here. We believe there are upside risks ahead to the extent that weak inflation and inflation expectations eventually weigh on yields and contribute to expectations of a more gradual Fed policy path and a flatter curve.

At the end of its two-day Federal Open Market Committee (FOMC) policy meeting, the US central bank announced that it was pulling the trigger on a rate hike. Fed Chair Janet Yellen also outlined a plan to begin trimming the central bank’s massive $4.5 trillion balance sheet beginning this year. The Fed is on track of meeting its 2017 goal of three rate hikes. Gold is sensitive to a rising-rate environment because it boosts the opportunity cost and sends investors into yield-bearing assets.

Despite initial gains from the Fed announcement, the US dollar slipped on Friday as the greenback slid 0.27%. A stronger dollar is bad for commodities like gold and silver because it makes it more expensive for foreign investors to purchase.

Gold prices were further supported by negative US economic data: construction for new homes fell in May and consumer sentiment decreased in June. Traders also limited their optimism for the Chinese economy after the government laid out a series of stimulus measures.

The yellow metal was a bit overshadowed earlier this week when palladium soared to a 16-year high. September palladium futures climbed $7.70, or 0.90%, to $865.65.

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