Gold prices ended slightly higher on Friday, but swung to a weekly loss of nearly $100. The main reason for this development is the suggestion for a potential slowing of the U.S. Federal Reserve’s bond purchasing program later this year.
Last Friday, gold for August delivery gained $5.80, or 0.5%, to $1,292.10 an ounce, but posted a weekly loss of $95.60. At present, the yellow metal trades lower in electronic session, near $1,282 an ounce.
The U.S. dollar extended its winning streak on Monday, notching gains against all of its largest rivals as investors demonstrate renewed interest. The ICE dollar index (DXY), which measures the U.S. unit against six other major currencies, advanced to 82.649 from 82.302 late Friday in North America. The gain represented the latest leg of a rally in the wake of comments by Federal Reserve Chairman Ben Bernanke that the U.S. could slow its monetary stimulus in the third quarter of 2013 if the economy continued to improve. Prior to that, the ICE dollar index had traded around 80.5
A stronger U.S. currency tends to weigh on gold and other dollar-denominated commodities, as it makes them more expensive for holders of euros, yen and other units. The relationship between the dollar and gold futures tends to be stronger on days with big moves.
- Read more: Goldman Sachs Cuts Gold Price Forecast
On Friday, the slight rise in gold prices was a consequence of buying from bargain hunters. Still, gains were subdued because of continued selling.
In addition, gold took further damage on news that exchange operator CME Group Inc. would increase margin requirements. The CME, which owns the Nymex’s metals-trading Comex division, said following Thursday’s close that it would hike initial and maintenance margins for gold by 25%, according to reports. The increase means speculative traders must have $8,800 to open a 100-troy-ounce position, up from $7,040, and keep $8,000 to hold the contract overnight, up from $6,400. The new margins would come into effect after last Friday’s close, CME said at the time.
Meanwhile, Asian stocks started the week mostly lower as lingering concerns over U.S. monetary policy continued to weigh on regional sentiment. After three successive sessions of substantial selling, Asian markets remained downbeat as investors’ sentiments turns negative.
In the coming week, market participants will watch the U.S. unveiling data on durable goods orders, jobless claims and consumer confidence. At present, traders view good economic news as bad for riskier assets, because that good news could spell the end of QE, positive data points could weigh on gold.
In the coming week, there might be some movements in silver as option contracts will expire. The July contract for silver ended up by 14 cents on Friday, or 0.7%, to $19.96 an ounce, after dropping $1.80 on Thursday.
