Weekly Market Outlook

Gold Slumps as Stronger Dollar, Share Market Advance Cut Demand

Gold fell, extending the first back-to-back weekly drop since May, as buoyant equity markets and gains in the dollar hurt demand ahead of central bank meetings in the U.S. and Japan this week.

Bullion for immediate delivery dropped as much as 0.7 percent to $1,313.57 an ounce and traded at $1,316.43 at 3:09 p.m. in Singapore, Bloomberg generic pricing shows. The metal lost 1.1 percent last week after shedding 2.1 percent the week before. Prices slid 0.5 percent on the Shanghai Futures Exchange.

Gold’s rally this year has been trimmed as a stronger dollar and rebound in equities cut demand for the metal as a store of value. The S&P 500 ended at a record on Friday amid signs of strength in the U.S. economy. Federal Reserve policy makers meet on July 26-27, with traders pricing in 10 percent odds of a rate rise, while the probability for a move in December rose to 45 percent from 12 percent at the beginning of this month.

“Market expectations of the Fed raising interest rates by the end of this year have increased significantly over the last two weeks, and it is likely that the Fed could be conveying a more optimistic message about the U.S. economy,” Vyanne Lai, an economist at National Australia Bank Ltd., said by e-mail. “This will likely bolster the strength of the dollar and weigh on gold prices.”

Dollar Gains

The Bloomberg Dollar Spot Index rose for the sixth time in seven days. The yen traded little changed after weakening as much as 0.6 percent amid expectations of more easing from policy makers on Friday. A majority of economists surveyed by Bloomberg project the Bank of Japan will step up stimulus at the meeting ending on July 29.

Strong corporate results announced by major international companies in the earnings reporting period in Europe and the U.S. last week boosted the risk-on sentiment of investors, which led to gold losing some of its allure as an investment, Lai said.

  • Holdings in gold-backed exchange-traded funds rose 0.6 metric tons to 2,005 tons on Friday, data compiled by Bloomberg show.
  • In China, bullion of 99.99 percent purity slid 0.6 percent to 283.25 yuan a gram ($1,318.67 an ounce) on the Shanghai Gold Exchange.
  • On the Shanghai Futures Exchange, gold declined 0.5 percent to 284.80 yuan a gram. Silver fell 0.8 percent to 4,297 yuan a kilogram. The metal lost 3 percent last week, the biggest weekly drop since March 25.
  • Spot silver dropped 0.7 percent, platinum slipped 0.8 percent and palladium retreated 0.9 percent.