Gold Notches First Weekly Gain to Stop 3 Weeks of Bleeding

By Barani Krishnan

Investing.com -- Gold had its first weekly gain in four as the dollar retreated further on Friday from its biggest rally in two decades, allowing bullion to somewhat reinforce its standing as a safe haven.

The benchmark gold futures contract on New York’s Comex, December, settled up $8.40, or 0.8%, at $1,728.60 per ounce. For the week, it gained 0.3% after a cumulative 5.2% loss over three previous weeks.

The Dollar Index, which pits itself against six major currencies led by the euro, slid for a third day in a row, reaching a low of 108.35 from Wednesday’s 20-year high of 110.79. The greenback slid even as Federal Reserve officials pushed on Friday for another outsized rate hike to keep inflation down, when the central bank meets on Sept. 21.

“Gold is higher as the historic run higher in the dollar appears to have run out of steam,” said Ed Moya, analyst at online trading platform OANDA. “It seems Wall Street is getting comfortable with the idea of another 75-basis point rate hike by the Fed.”

The United States should have another “significant” rate hike this month to curb inflation, Fed Governor Chris Waller said Friday, with one of his most hawkish colleagues, James Bullard, suggesting a third straight 75-basis point increase.

The Fed has raised rates by 225 basis points in four increases since March, with two back-to-back 75 basis point hikes in June and July, to curb runaway inflation.

U.S. prices have been growing at around four-decade highs since late last year, although the closely-watched Consumer Price Index, or CPI, slowed to an annualized rate of 8.5% in July from a peak of 9.1% in June. The next CPI reading, for August, is due on Sept. 13.

The Fed’s target for inflation is a mere 2% a year and it has vowed to raise interest rates as much as necessary to achieve that.

“Gold’s fate could be determined after this next inflation report,” Moya said. “If consumer prices come in hotter-than-expected, gold might see selling pressure target the $1,680 region. A sharp deceleration with pricing pressures might only provide a modest boost higher for gold.”

On the other hand, gold could gain more acceptance as a safe-haven if the dollar retreats further, said Moya. “Gold is finding a home above the $1700 level and that could continue if investors continue to look beyond hawkish central bank speak.”

Economists have cautioned that the Fed could end up pushing the United States into a deep economy with its sharpest rate hikes in four decades, saying the high-flying housing sector and one-time ebullient stock market could be major victims.

Preliminary estimates show the U.S. gross domestic product, or GDP, likely contracted by 0.6% in the second quarter after a 1.6% slowdown in the first quarter. Two straight quarters of GDP growth typically places an economy in a recession.

Rate hikes are anathema to gold while recessions boost its safe-haven appeal.