Updated from 11:31 a.m. EDT
News of a slowing economy weakened the greenback Friday but helped gold breach the psychologically vital $600-an-ounce level.
The Commerce Department reported that U.S. economic growth slowed to a 1.6% rate in the third quarter, down from 2.6% the previous quarter and lower than consensus forecasts of 2.1%.
Subdued economic activity increases the likelihood of a near-term interest rate cut by the
. Other things being equal, that would be bearish for the dollar but bullish for gold, which tends to move in the opposite direction to the U.S. currency. However, an opposing force was also at play: Slowing growth may lead to less inflationary pressure; that wouldn't be positive for gold, which is often purchased as a long-term hedge against rising prices.
The resulting battle between the two factors led to a day of choppy trade confined to a tight range. But in the end the greenback's impact on gold won out.
The dollar was recently buying 117.63 yen down from 118.39 late Thursday, and also losing against the euro, which was trading at $1.2735 compared with $1.269.
Contracts for December delivery of gold closed up $1.20 at $601 an ounce on the Comex division of the New York Mercantile Exchange. Shares of the bullion exchanged-traded funds also edged higher, with those of
iShares Comex Gold Trust
up 0.2% recently, while those of
streetTracks Gold Shares
were gaining 0.1%.
Another economic measure also augers for a continued slowdown, though not necessarily a recession. The Weekly Leading Index logged a decline of 0.1% for the period ending Oct. 20, marking the 13th successive decline. The New York-based Economic Cycle Research Institute, which publishes the indicator, reported a drop of 0.5% in the prior period.
"It is certainty heading in the direction of a soft landing," says Anirvan Banerji, director of research at ECRI and a
contributor. "The big 'but' here is that the consensus seems to be if it's not going to be recession, then it's off to the races. And that's where the WLI seems to differ."
While not forecasting a full-blown recession, Banerji warns "the slowdown is likely to be more serious than most people in the consensus are predicting."
Others see inflation problems on the horizon.
"We will be forced to take a more sober look at the fundamentals as growth reaccelerates and core inflation pushes higher during the quarters ahead," writes Michael Darda, chief economist at MKM Partners in Greenwich, Conn.
On the technical analysis side, significant short-term resistance is still seen at prices around $600 an ounce, says Larry Levin, president of Chicago-based
. In the event that the $600 obstacle is breached, he sees major channel resistance kicking in between $615 and $618, with longer-term support around $580.
It remains to be seen whether Friday's close marks a convincing enough move to warrant further tests of resistance at higher levels, or whether bullion sellers will be drawn back to the market, as has been the case recently at or around the $600 level.
Among the miners, RBC Capital Markets upgraded its rating on
to outperform from sector perform. The stock was recently up 59 cents, or 2.4%, to $25.18.
In base metals, Comex December copper contracts gained 0.5 cents to close at $3.4050 a pound.
SecretsOfTraders' Levin also notes that copper prices seem to be stuck in a range between $3.20 and $3.70. "I would be a buyer at $3.20 and a seller at $3.70," he says, while cautioning: "This market looks a little weak."
Elsewhere, zinc prices hit a record high of $4,170 per ton ($1.89 a pound) on the London Metal Exchange in morning action, reports
. Strong metals prices have benefited Canada's zinc miner
, which has seen its shares rebound about 30% since its recent lows in September. Shares were gaining 1.1% recently.
In ferrous metals, UBS reiterated its buy rating on the specialty firm
Oregon Steel Mills
and raised its price target to $6.40 a share from $6.10. The company announced record third-quarter earnings Thursday.