Gold’s Slump May Continue Next Week

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Gold prices dropped to their lowest finish in about four months last Friday concluding the week in a loss. 

August gold lost $13.60, or 1.1%, to settle at $1,209.70 an ounce. Prices ended down 2.6% for the week to log a fifth straight weekly decline.

Technically, gold still looks weak. It recently broke its 200-day average and continues to trend downward with bearish momentum increasing. The market has broken below $1,250 support, thus a move down to $1,180 in the weeks ahead seem possible.

Meanwhile, silver prices had briefly tumbled in Friday’s Asian trading session with futures plunging nearly 10%, likely due to a trading error, before quickly reversing most of that decline, in what’s typically referred to as a “flash crash.”

September silver lost 55.8 cents, or 3.5%, to end at $15.425 an ounce, after an earlier low at $14.34. It settled at a level not seen since April of last year. For the week, it was down 6.9%.

Analysts believe that interest rate tightening will still happen and stimuli be dropped by the main developed world central banks, but there’s always the chance that the moves could be postponed. So global financial uncertainty remains a concern in the developed world.

The U.S. Federal Reserve is contemplating its efforts to normalize policy. In a report Friday, the central bank forecast a gradual increase in interest rates and the imminent wind down of its balance sheet. The European Central Bank, meanwhile, has been signaling that it is getting ready to wind down its stimulus efforts after years of aggressive bond buying.

On Friday, investors looked to the latest monthly U.S. jobs report. The world’s largest economy created 222,000 new jobs in June. The increase was the largest in four months.

However, while the jobs numbers were encouraging, wages stayed flat. So, there are concerns that inflation is just not rising. Low inflation is transitory and that leaves the door open to further interest rate hikes, including what most analysts expect to be one more rate increase in 2017.

Higher interest rates lift the appeal of holding dollars. That also means that a stronger dollar undercuts the benefit of holding non yielding gold that is priced in the currency.

The U.S. dollar which tends to move opposite of dollar-priced gold, edged up by 0.2% Friday, lifting its weekly gain to 0.4%. Strength in U.S. equities helped to dull investment demand for gold.

In exchange-traded funds, the SPDR Gold Trust fell 1.1%, trading down 2.4% for the week. The VanEck Vectors Gold Miners declined 1.5% for the session, while the iShares Silver dropped 2.9%.

There is a slim possibility for gold to bounce. The metal has been hurt lately by expectations for tighter monetary policy globally, but looks for this to abate.  Next week, gold prices could rebound a little around the $1,200 level because some of the optimism for the Fed to tighten on the strong jobs report will go away.

1 COMMENT

  1. It’s all being manipulated by the LBOE along with the Americans and the Germans paper gold is the best form to manipulate gold to their advantage so that they can shorten it and turn around and buy it at a lower level the system is rigged. It is so dishonest and so rig the Chinese opened their own market called the Shanghai gold exchange and it is just a matter of time before all gold prices are set by the Chinese and not the diss honest Americans and English and Germans and by the way Deutsche bank just got busted for gold manipulation and find millions of dollars

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