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Dollar Rally Weighs on Gold

Simon Constable

Gold futures were weaker Friday as the dollar rallied on the back of strong economic data.

Contracts for April delivery of bullion were losing $1.50 at $652.90 an ounce on the Comex division of the Nymex. The Powershares DB Gold(DGL Quote) exchange-traded fund, which tracks futures prices, was lower by 0.1% recently.

The bullion ETFs, streetTracks Gold Shares (GLD Quote) and iShares Comex Gold Trust (IAU Quote), were barely changed in recent action.

Relatively robust durable goods orders and better-than-expected new home sales for December displayed more evidence of a far-from-weak economy, helping stimulate buying interest in the greenback.

"It appears likely durable goods will be strong for the month of January, as well," says Randy Diamond, an analyst at Miller Tabak in New York, in a research brief. "The sentiment is that the economy is improving."

One dollar would recently buy 121.49 yen, up from 121.15 late Thursday. One euro would purchase $1.29, down from $1.2938 previously. Prices for gold tend to move in the opposite direction to the value of the U.S. currency.

Other fair economic news added to the picture. The Weekly Leading Index grew 4.5% last week vs. a 4.4% increase in the prior period, according to the Manhattan-based Economic Cycle Research Institute. That marks the 14th consecutive uptick in the indicator, and the trend continues to be one of acceleration. Such readings auger for a robust economy in the months to come and likely a sturdier dollar than some gold watchers want to see.

The recent bullion rally, which has taken spot prices from around $608 on Jan. 8 to $646 recently, seems to have shaken out some physical buyers, one observer notes.

In particular, India's purchases appear to have dwindled to a trickle during the rally, says Rhona O'Connell, an analyst at GFMS Analytics in the U.K.

Turning to the miners, the CBOE Gold Index was dipping 0.6%, pulled under in part by shares of component Gold Fields(GFI Quote), off 2% recently.

Barrick Gold(ABX Quote) and Newmont Mining(NEM Quote) were down also, losing 1% and 0.4%, respectively.

As for base metals, copper was losing 3 cents at $2.62 a pound on the Comex.

Elsewhere in the sector, the Indian conglomerate Aditya Birla is expected to submit a bid of between $5 billion and $6 billion for aluminum maker Novelis(NVL Quote), according to a report from the Hindustan Times. The company confirmed it was in talks to sell itself, but it didn't name the potential buyer.

Shares of Novelis were rallying 23% recently.