Gold prices on Friday edged up from the three-week low it struck a day earlier but the downbeat tone, in the wake of signals from the Federal Reserve for another increase to interest rates this year, sent the yellow metal down for a second-straight week.
Downbeat U.S. data Friday, with construction for new houses down in May and a June drop in consumer sentiment, and optimism for China’s economy after a round of monetary stimulus from its central bank, underpinned gold on Friday as well.
August gold GCQ7, -0.11% tacked on $1.90, or 0.2%, to settle at $1,256.50. The contract settled at $1,254.60 an ounce Thursday—the lowest most-active contract finish since May 24, according to FactSet data.
The metal suffered a 1.2% weekly decline. That marked back-to-back weekly losses for gold after last week’s decline snapped a string of five-straight weekly gains.
July silver SIN7, -0.10% fell 5.5 cents, or 0.3%, to end at $16.661 an ounce, settling at its lowest in more than a month. The white metal declined 3.3% for the week.
“We aren’t seeing any ‘sell the rumor, buy the fact’ posture from gold bugs because market participants believe that it’s inevitable [that] the interest rates rise, long term,” said Adam Koos, president of Libertas Wealth Management Group.
Earlier this week, Fed Chairwoman Janet Yellen and her colleagues laid out a plan to shrink the central bank’s massive $4.5 trillion balance sheet, one of its economy-spurring tools, starting this year, as they also raised a key U.S. interest rate.
“It may be initially counterintuitive to think that soft inflation could create upside risks for gold, which has historically been viewed as an inflation hedge. However, we think the read-through for rates and Fed policy is important here,” Joni Teves strategist for UBS, wrote in a note. “We believe there are upside risks ahead to the extent that weak inflation and inflation expectations eventually weigh on yields and contribute to expectations of a more gradual Fed policy path and a flatter curve.”
“This would suggest to us that gold has some catching up to do ahead and current weakness presents a good opportunity to build positions at more attractive levels,” Teves said.
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