Updated from 11:29 a.m. EDT
Metals markets swooned again Friday after hawkish comments from San Francisco
President Janet Yellen late Thursday boosted the greenback.
Contracts for December delivery of gold shed $7.60 to close at $617.50 an ounce on the Comex division of the New York Mercantile Exchange. Meanwhile, the euro was trading at $1.267 vs. $1.273 late Thursday. The dollar was also gaining against the yen, buying 116.97 yen vs. 116.43 yen the previous session.
Gold prices tend to move inversely with the U.S. currency.
"The Fed is facing an unenviable dilemma: housing inflation is slowing sharply while labor costs are accelerating sharply," writes Michael Darda, economist at MKM Partners. "It's time for forecasters to pick their poison: higher inflation or reduced profit margins."
It seems that currency and gold investors see continued aggressive inflation fighting action by the Fed, with reduced signs of monetary loosening on the horizon, rather than tolerance of rising price levels.
Meanwhile, the other signs point to evidence that the existing monetary tightening is having at least some effect. The Economic Cycle Research Institute's Weekly Index of Leading indicators fell 1.5% in the week to Sept. 2, marking the sixth straight week of declines.
Although the data show slowing economic growth, it is still too early to point to a declining economy or a recession, notes Lakshman Achuthan, managing director at the ECRI.
Reduced Middle East tensions, which only weeks ago were boosting bullion and soft crude prices (trading at $66.40 a barrel on Nymex recently), have also helped reduce investors' appetite for gold, which was trading closer to $650 on Tuesday, says Bernard Hunter, director of precious metals at the Toronto-based bullion bank ScotiaMocatta.
The Amex Gold Bugs Index, which tracks shares of unhedged miners, was losing 2.3% as investors priced in the immediate impact of the fall in gold prices. Index component
was retreating the most, slipping 3.7% recently.
Shares of the bullion exchange-traded funds,
iShares COMEX Gold Trust
iShares COMEX Gold Trust
, were sinking also.
In base metals, Comex prices for December delivery of copper fell 8.1 cents to close at $3.567 a pound as the prospect of interest rates remaining high kept a lid on the enthusiasm traders exhibited earlier in the week.
"There's been a swing in sentiment," says Andy Cole, a base metals analyst at Metal Bulletin Research in London, adding that from a technical analysis viewpoint prices remain somewhat range-bound.
"It hasn't made a convincing
enough breakout to convince the market that the rally is sustainable," he says, noting that key resistance at $3.72 will need to be broken before a rally can take hold.
Freeport-McMoRan Copper & Gold
were losing ground in response to the lower metal prices, off 1.5%, 2.5% and 1.3%, respectively.