Gold futures weekly recap, August 18 – August 22

Gold futures logged a sizable drop this week, as investors saw a more hawkish Fed in the July meeting minutes, betting on an earlier interest rate hike. Economic data by the US fomented bullish sentiment for the dollar, pressuring the yellow metal further. The ongoing conflicts in Ukraine and in the Middle East did not spur enough safe haven demand to offset gold bears.

Gold futures for delivery in December added 0.38% on Friday, closing at $1 280.20 per troy ounce, 2% down for the week. Weekly high and low were at, respectively, $1 304.9 on Monday and $1 273.4 per ounce on Thursday, which was also a two-month low. The contract lost 0.3% last week.

“Investors continue to adjust their holdings of gold lower as the improving U.S. macroeconomic environment drives expectations that interest rates will soon rise,” Zhu Runyu, analyst at CITICS Futures Co., a unit of China’s biggest listed brokerage, said for Bloomberg.

Economic data, rate outlook

The US macroeconomic picture did indeed further brighten yesterday, with a number of gauges logging above expectations. Existing home sales increased more than forecast in July, and so did the Philly Fed manufacturing index, while jobless claims were fewer. Earlier data showed building permits and housing starts posted significant improvement, while CPI was largely as expected, and matching the Feds inflation target.

The upbeat data reinforced another boost for dollar bulls, as minutes from the Fed’s July meeting were released on Wednesday, revealing a more hawkish stance by some policy makers, who debated whether a rate hike should be introduced earlier than previously expected. Officials agreed that further positive data was needed before such a decision be taken, though the hint of a hike boosted the US dollar to a one-year peak and pressured gold lower.

“We do expect rates to rise and the dollar to strengthen, and that’s not a conducive background for gold,” Mohan Mandrekar, an analyst at Bessemer Trust, which has $1.2 billion invested in commodities, said for The Wall Street Journal.

Since gold, like many other commodities, is mostly traded in dollars, the value of the US currency plays a major role in the metal’s investment appeal, with a stronger dollar lifting the price of gold to foreign currencies and vice versa.

Eurozone

The Eurozone posted mixed, but generally downbeat data this week. Manufacturing PMI was logged below expectations, but still above the 50 threshold, which means an expansion of the sector, with Germany once again offsetting a significant contraction in France. Services were relatively better, with both German and French services expanding more quickly than expected, while Bloc-wide expansion was unchanged, though still significant. Meanwhile, the preliminary consumer confidence figure was lower than forecast at the lowest level since February.

Investors bet on the positives, though, bumping the euro to bounce off a one-year low against the US dollar.

Since the two currencies share a near-absolute opposite correlation, a drop for the euro directly translates into a stronger dollar and lower prices for gold, and vice versa.

Ukraine, Gaza

Fighting in Ukraine continued with increasing intensity, spurring some safe haven bids, as focus has shifted on the controversial Russian aid convoy, which was suspected of carrying military provisions for pro-Russian separatists in eastern Ukraine, who have battled government forces for four months now.

Part of the convoy entered Ukraine without permission from Kiev and without escort from the International Red Cross. The Russian foreign ministry said the delays in allowing the humanitarian aid to enter were uncalled for, and has decided to act. The office also warned against any force used against the convoy, without specifying the consequences.

Battles in eastern Ukraine left at least 34 civilians dead on Tuesday alone, bringing the estimated death toll to over 2 100, while a further 5 400 people were injured.

Elsewhere, Israeli PM Benjamin Netanyahu vowed to see the military campaign in Gaza through to its end and “with all means necessary”, as Hamas-fired rockets continued landing in Israel.

The latest exchanges of fire between Hamas, which controls Gaza, and Israel come after peace talks brokered by Egypt crumbled. The principal demand by Israel that Gaza must demilitarize is dismissed by Hamas, while Israel refuses to ease the blockade on the Palestinian enclave and demands it has control over its borders in any case.

The conflict in Gaza has claimed more than 2 000 Palestinian lives, mostly civilians, and 66 Israelis since flaring back to life some six weeks ago.

Next week

Next week has plenty of economic data in store. The German GfK and Ifo consumer confidence gauges will be posted, alongside unemployment and CPI figures for the Eurozone, with little change forecast across all readings, supporting a very slow recovery pattern.

In the US, next week will see Markits PMI readings, as well as the closely monitored consumer confidence indices by the Conference Board and by the University of Michigan, which are set to log steady and quite positive consumer sentiment. Figures on GDP growth, personal spending, durable goods orders and more housing data will complete a quite busy week.