Gold posts first weekly loss since June after big plunge

[NEW YORK] Gold posted its first weekly drop in more than two months after being buffeted by climbing real yields, profit-taking and uncertainty over US-China trade talks.

Bullion is ending a week filled with big price fluctuations on a relatively tame note, trading at more than US$100 an ounce below last week's record after dropping the most in seven years on Tuesday. Both gold and silver spot prices are heading for the first weekly decline since June 5 and the biggest since March.

The rally in gold, which has surged this year as central banks worldwide took steps to shore up ailing economies and real yields turned negative in the US, is encountering some turbulence with the selloff in Treasuries and a stalemate in US stimulus talks. Data on Friday showed China's economic recovery continued in July and US industrial production increased for a third straight month, further dimming the appeal of bullion as a haven.

"The washout we saw earlier this week was sort of taking the froth out of the speculation" in gold, Matthew Weller, global head of market research at Gain Capital Group LLC, said by phone.

Spot gold fell 0.4 per cent to US$1,945.12 an ounce in New York, closing with a 4.4 per cent weekly loss, the first decline since June and the largest since March. Futures for December delivery retreated 1 per cent to settle at US$1,949.80 on the Comex. Silver for immediate delivery declined 3.8 per cent to US$26.4463 an ounce, after a 7.8 per cent jump on Thursday.

Even with the decline, gold is still up 28 per cent this year. Credit Suisse raised its gold price forecast for next year to US$2,500, seeing a "perfect storm" of factors pushing bullion to a new high. On Friday, a report showed US consumer sentiment remained weak in August amid expectations for a bumpy ride ahead for an economy coping with an unfettered coronavirus pandemic and widespread joblessness. And a meeting expected between China and the US to discuss progress on the first phase of their trade deal was postponed indefinitely.

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An index of the US dollar fell for a third day.

"Barring further profit-taking, we think the longer-term uptrend is intact given US dollar weakness and the scale of stimulus and as we expect interest rates to remain low or negative," Suki Cooper, precious metals analyst at Standard Chartered Bank, said in a note.

"Price dips are likely to be viewed as buying opportunities as the macro backdrop remains favourable for gold."

"All the conditions for a favourable gold price environment are present," Jake Klein, executive chairman of Australian producer Evolution Mining, said in a Bloomberg TV interview on Friday. "The geopolitical tensions, the Covid pandemic and the impact that's having - unemployment rates are rising - these are all unfortunate circumstances. Unfortunately, gold is a beneficiary of those times."

Gain Capital's Mr Weller said he's watching stimulus deliberations in the US Congress for an indication on gold's direction.

"For me it's all about fiscal stimulus," Mr Weller said. "Congress will act when the market forces them to. So if we see stocks come off a bit, that could increase the pressure, and once people start getting evicted and once the unemployment payments drop off severely, I think that's what could cause Congress to act, and therefore put some wind in the bulls sails when it comes to gold."

BLOOMBERG