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Markets

Gold set for worst week in four on strength in dollar, yields

  • Dollar set for best week in three months.
  • Silver down 1.5% for the week.
  • Platinum, palladium face best week in five.
Published February 5, 2021

Gold rose on Friday, but was set for its worst weekly dip in four as investors continued to bank on the dollar with US Treasury yields also gaining.

Spot gold rose 0.8% to $1,807.10 per ounce by 1059 GMT, after falling to its lowest since Dec. 1 on Thursday. US gold futures gained 0.9% to $1,807.80.

Gold's initial dip below the $1,800 level infused some buying interest, evidenced by inflows into exchange traded funds (ETF), Commerzbank analyst Carsten Fritsch said in a note.

The SPDR Gold Trust, the largest gold-back ETF, saw its highest inflows since Jan. 15, on Feb. 4.

But for the week, gold has shed 2.2% so far, which would be its biggest decline since the week ended Jan. 8.

"Gold is getting clobbered," said CMC Markets UK's chief market analyst Michael Hewson, adding higher yields in US Treasuries are much more attractive than holding money in gold.

The dollar was set for its best week in three months, while US Treasury yields also rose.

Gold's status as a hedge against inflation from widespread stimulus has been challenged by higher yields because they increase the opportunity cost of holding non-yielding bullion.

Gold could endure some "serious short-term pain" but its role as an inflation hedge could return as the economic recovery starts accelerating by late second-quarter, Jeffrey Halley, a senior market analyst at OANDA said.

"Silver's fate will be similar to gold and it can retest $22 over the next two weeks, although it'll find some support through Biden's solar push."

Spot silver rose 1.2% to $26.60 an ounce, but was down 1.5% this week. Prices have shed over 11% since scaling a multi-year peak of $30.03 on Monday propelled by a GameStop-style retail frenzy.

Platinum added 1.3% to $1,111.55 and palladium gained 1.5% to $2,317.68, with both metals headed for their best week in five.

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