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Gold sets sights on a more than 3-month high

Published: Feb 16, 2017

Fed’s Fischer echoes Yellen’s signal for higher rates in coming months

Gold futures tried for back-to-back gains Thursday, setting prices up for their highest finish in more than three months.

“The dollar is weaker, Treasury yields are down and stocks are lower,” said Michael Armbruster, principal and co-founder at Altavest. “That is a nice trifecta for gold.”

April gold GCJ7, +0.50% rose $9.80, or 0.8%, to $1,242.90 an ounce after tacking on 0.6% on Wednesday. A settlement around this level would be the highest since Nov. 10, according to FactSet data.

The yellow metal’s gain on Wednesday snapped what had been a four-session fall stoked by expectations that the dollar would rise on heightened expectations for U.S. interest-rate hikes, following two days of testimony this week on Capitol Hill from Federal Reserve Chairwoman Janet Yellen.


See MarketWatch’s blog on Yellen’s congressional testimony

Some analysts, however, believe that gold’s modest near-term gains look vulnerable as U.S. equities remained near record highs amid optimism for the Trump administration’s plan to deliver tax reforms, said analysts.

“The move [higher for gold] may have reflected profit-taking after markets exhausted the week’s Fed policy-defining news flow,” said Ilya Spivak, strategist for Daily FX. “Jitters ahead of a coming G-20 foreign ministers’ meeting—the first to be attended by members of the Trump administration—may have encouraged a cautious disposition.”

Meanwhile, a trio of mostly solid economic reports Thursday covering jobs, housing and regional manufacturing did little to change the interest-rate outlook.

Jobless-benefits claims inched up to a still-low 239,000, while the Philadelphia Fed said its manufacturing index soared in February to a reading of 43.3 from 23.6 in January. That’s the highest level since early 1984. Meanwhile, housing starts fell 2.6% in January.

Bond yields paused the gains seen in the wake of relatively hawkish comments this week from Yellen on the nation’s interest-rate picture. Bond yields TMUBMUSD10Y, -1.44% pulled back Thursday, although trimmed that decline when Fed Vice Chair Stanley Fischer early Thursday echoed Yellen’s signal for more gradual rate increases in coming months. Bond yields and nonyielding gold typically move inversely.

Higher interest rates can provide a lift to the dollar and increase the absolute cost of the asset as well as the cost of storing commodities, making them less attractive for investors seeking better returns.

The ICE U.S. Dollar Index DXY, -0.45% was down by nearly 0.7% after trading at four-week highs in the wake of Yellen’s Tuesday comments.

On Comex, futures prices for silver climbed above $18 an ounce, set for their highest settlement since Nov. 10, according to FactSet data.

March silver SIH7, +0.43% rose 12.7 cents, or 0.7%, to $18.09 an ounce.

“Silver has been pointing higher this week,” as “smarter money recognizes the incredible risk in speculative equity markets,” said Ned Schmidt, editor of The Value View Gold Report.

“Gold, silver and gold stocks have outperformed [the] equity market since the December [U.S. interest] rate increase,” with money flowing to the strongest sectors, he said—and “odds still favor gold and silver beating the U.S. equity market in 2017.”

http://www.marketwatch.com/story/gold-tries-for-repeat-gains-as-dollar-wobbles-2017-02-16