Metals Stocks: Gold drops, adds to weekly loss as dollar index gains

Metals Stocks: Gold drops, adds to weekly loss as dollar index gains

Gold headed for back-to-back losses Wednesday as the leading dollar index gained, keeping up the inverse relationship between the two assets as markets digested the latest trade-spat developments and monitored strained diplomacy at the NATO summit.

August gold GCQ8, -0.45% lost $5.40, or 0.4%, to $1,250 an ounce, so far tracking about a 0.5% week-to-date loss and off more than 4% over the past month. The most popular fund tracking gold, the SPDR Gold Shares GLD, -0.18% was 0.4% lower.

September silver SIU8, -0.82% traded 15 cents, or 0.9%, lower at $15.935 an ounce, down some 0.8% so far this week and plunging 6% over the past month. The iShares Silver Trust SLV, -0.33% was also lower.

The ICE U.S. Dollar Index DXY, +0.24% which reflects the greenback’s performance against a half-dozen currencies, rose 0.3% to 94.40.

Gold has mostly been in a downtrend that has caused investors and technical analysts to maintain a bearish outlook for the asset that should ordinarily prosper during times of uncertainty, including around the trade disputes between the U.S. and its partners across the globe. However, the haven asset has shed some of its usual flight-to-safety luster so far.

The White House late Tuesday said it would assess 10% tariffs on a further $200 billion in Chinese goods. The move is seen as deepening the rift with Beijing and sending a message to other trading partners that the U.S. won’t back down in a trade fight. The news sent stocks and most “risk-on” markets lower.

Meanwhile, President Trump on Wednesday reiterated his call for allies to increase their defense spending at the outset of this week’s NATO summit, while sharply criticizing Germany for supporting a major gas deal with Russia, developments that only intensify the geopolitical uncertainty facing markets that have been otherwise cheered by upbeat earnings and solid economic growth.

The interest-rate watch driving the dollar and commodities continues with the release of the producer-price index for June at 8:30 a.m. Eastern Time, followed by data on wholesale inventories from May at 10 a.m. New York Fed President John Williams speaks on the economy at 4:30 p.m. Eastern.

“Gold’s negative correlation to the dollar remains a key challenge in the short term, but given the short-to-medium-term dollar-negative outlook highlighted [in the Saxo Bank quarterly outlook], we believe this headwind will fade over the coming quarter,” said Ole Hansen, Saxo’s head of commodity strategy.

“Having picked major fights on trade with friends and foes it is our belief that President Trump will sooner or later go on the attack against the stronger dollar as greenback strength complicates his vision of reducing the U.S. trade deficit,” Hansen said. “Despite the fading focus on inflation, which was a key driver at the beginning of the year, we believe that investors will continue to seek diversification and protection against potentially mispriced financial and geopolitical risks” with investments in gold. He pegs the end-of-year call for gold at $1,325 an ounce, with silver at $17 an ounce.

Around the metals complex, copper prices continued their retreat, more directly hit by worries over the risk of an escalating trade war. Three-month copper on the London Metal Exchange dropped as much as 4 percent to $6,081 a tonne, its lowest since July last year, before recovering. September copper HGU8, -2.62%  plunged 2.7% to $2.7635 a pound.

October platinum PLV8, -0.46%  fell by 0.4% to $842.80 an ounce and September palladium PAU8, -0.74%  declined by 0.8% to $930.50 an ounce.

Read: How platinum is starting to shine for bargain hunters

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