Gold suffers largest weekly loss in more than 3 years

(November 11, 2016 - by Myra Saefong)

Gold futures dropped Friday to mark their lowest finish since June, as strength in the U.S. dollar and equities this week, and growing expectations for a Federal Reserve interest-rate increase next month, fueled the largest weekly decline in more than three years.

Copper futures, meanwhile, saw a weekly climb of nearly 11%, which was the largest in over five years, as traders bet that policies expected to be pursued by Republican Donald Trump’s administration could feed demand for industrial metals

For the week, prices lost roughly 6.2%, the largest since the week ended June 21, 2013, when they dropped about 6.9%.

“Gold, a noninterest-bearing and dollar-denominated asset, has basically been THE victim of a sharp rise in both the dollar and equity prices, which have responded surprisingly positively to the outcome of U.S. elections,” said Fawad Razaqzada, technical analyst at Forex.com.

Read: The night Trump was elected president, Stanley Druckenmiller dumped gold

 “The only certainty before Tuesday’s U.S. election was that a victory for Trump would hurt stock markets and send gold soaring,” said Adrian Ash, head of research at Bullion Vault. “That proved right for just 12 hours. One ghosted speech and a few days off Twitter was all it took for money managers to pile back into equities and dump gold.”

Still, “this week’s surge and drop in gold simply reflects in miniature what the metal tends to do for investors longer-term, offsetting losses in equities but easing back when stock markets do well,” he said.

Read: Why gold failed to rally after Trump’s win

U.S. equities were mixed Friday as gold futures settled, but were set to post broad gains for the week, with the Dow Industrials DJIA, +0.21%  up 5% week to date after posting a record close on Thursday.

“Money flows quickly turned risk-on” after the election and “gold has since collapsed,” Tyler Richey, co-editor of The 7:00’s Report, told MarketWatch.

Despite all of the “discouraging” price action, Richey said he’s “not throwing in the towel on our long call just yet as we still see the risk reward of being long gold here is favorable.”

However, it is “critical for the health of the relatively young uptrend in gold,” where technicals turned bullish April, that price support on the charts holds between $1,200 and $1,220, he said.

Meanwhile, a rate increase is expected at the central bank’s mid-December meeting. Higher rates are typically gold-negative due to the nonyielding metal’s opportunity cost in a rising-rate climate.

On Friday, Federal Reserve Vice Chairman Stanley Fischer signaled his support for gradual interest-rate hikes, saying in a speech that “the case for removing accommodation gradually is quite strong.”