Gold prices log first loss in 3 sessions as Treasury yields, dollar rise

Price action

• Gold for August delivery
  GC00,
  -0.26%

  GCQ23,
  -0.26%
  declined by $9.90, or 0.5%, to settle at $1,970.90 an ounce on Comex.

• Silver for September delivery
  SI00,
  -0.26%

  SIU23,
  -0.26%
  fell 43 cents, or 1.7%, to $24.96 per ounce.

• October platinum
  PLV23,
  -0.27%
  lost $20.70, or 2.1%, to $964.10 per ounce, while September palladium
  PAU23,
  -0.31%
   fell by $32.10, or2.5%, to $1,275.30 per ounce.

• September copper
  HGU23,
  -0.21%
  gained 2 cents, or 0.5%, to $3.83 per pound.

Market drivers

“Inflation continues to come down and I expect that to continue,” said Adam Koos, president at Libertas Wealth Management Group. However, “inflation hasn’t been the biggest enemy to gold lately.  It’s been interest rates and the dollar.” 

As interest rates continue to “slow their incline” — as the Fed reaches the end of its hiking cycle — all eyes are going to be “glued to the greenback, and I don’t know that it has the strength to hang in there as the year moves on,” he said.

In Thursday dealings, the ICE U.S. Dollar Index
DXY,
+0.04%
was up 0.5% at 100.827. The index traded higher for the week but lower month to date. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.846%,
meanwhile, was up 11.5 basis points at 3.855%. Typically, higher yields and a stronger dollar weigh on the price of gold.

If the dollar strengthens, gold may stall and continue its “chop-fest sideways.  But if it doesn’t — if the dollar breaks down — I see gold ending 2023 at all-time highs,” said Koos.

Taking a look at technical trading, Koos said he sees a lot of volume on up-days and muted volume on down-days in gold.

That “speaks to the demand in the market,” he said. “It seems gold is carving out the right side of its base, heading on a trip up north to visit $2,040 again.” Gold futures, based on the most-active contracts, settled as high as $2,069.40 on Aug. 6, 2020.

On Thursday, the U.S. government reported that the number of Americans who applied for unemployment benefits last week fell to a two-month low of 228,000.

Gold bears pounced onto the scene after jobless claims unexpectedly fell, said Lukman Otunuga, manager, market analysis at FXTM. Given how this report suggests that labor markets “remain resilient, this stimulated expectations around the Fed keeping rates higher for longer.”

The precious metal could “experience further losses in the short term if prices break below the $1,970 level,” said Otunuga. Still, regardless of recent losses, gold’s “medium to longer-term outlook is likely to be influenced by what actions the [Fed] takes next week.” The central bank will end a two-day monetary policy meeting on Wednesday.

Also on Comex Thursday, prices for copper bucked the overall trend to end a bit higher, getting a boost from “two positive Asia Pacific developments overnight,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. The People’s Bank of China held its benchmark interest rate at 3.55%, and Australia, a big supplier of commodities to China reported strong employment, he said.