Tuesday 21 November 2017

Gold prices have biggest weekly fall for a year as US economy keeps strengthening

Gold is on its way to a third straight weekly loss as signs of resilient US growth increase the chances that Fed officials will tighten monetary policy soon
Gold is on its way to a third straight weekly loss as signs of resilient US growth increase the chances that Fed officials will tighten monetary policy soon

Joe Deaux

A "pretty darn strong" US employment report is pretty darn bad for gold, it would appear. Bullion headed for the biggest weekly drop in a year after payrolls surged and wage growth accelerated in October, boosting the case for the Federal Reserve to raise interest rates.

Higher rates cut the appeal of the metal, because it doesn't pay interest or give returns like assets such as bonds or equities.

Gold is on its way to a third straight weekly loss as signs of resilient US growth increase the chances that Fed officials will tighten monetary policy soon. Fed chief Janet Yellen said in a congressional hearing this week that a move on rates in December is a "live possibility" if economic data hold up.

The dollar jumped after the payrolls report.

"The Fed is determined to move, and now they have the fuel to do it," said Mike McGlone, director of research at ETF Securities in New York. "That number was pretty darn strong, and there's not much we can do about it. Higher yields, a strong dollar and Fed tightening are all bad for gold."

Gold futures for December delivery fell 1.6pc to $1,086.80 an ounce on the Comex in New York on Friday. Prices are down 4.8pc on the week, heading for the biggest such loss since October 31, 2014. Call options on gold (giving owners right to buy December 2015 futures at $1,150 an ounce) fell 63pc.

The option was the most active on Friday morning, with 743 contracts trading. Put options climbed. Gold prices remain far off the all-time high reached in April 2011, when the precious metal touched $1,923 per ounce as the global economy wobbled.

The addition of 271,000 jobs exceeded all estimates in a Bloomberg survey of economists. The median forecast called for a 185,000 advance. Average hourly earnings climbed from a year earlier by the most since July 2009, the US government report showed on Friday.

Currency traders on Wall Street boosted the odds of a rate increase happening next month to 70pc - a sharp rise from 56pc on Thursday, Fed-fund futures data show.

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