By Barani Krishnan
Investing.com -- The dollar is stealing every bit of safe-haven shine out, leaving gold — the original precious metal — with very little market luster.
Gold’s benchmark futures contract on New York’s Comex, December, settled at $1,648.90 an ounce, down $28.10, or 1.7%, on the day, after a session low at $1,646.15. For the week, it lost just over $60, or 3.5%.
The spot price of bullion, which is more closely followed than futures by some traders, was at $1,645.24 by 14:00 ET (18:00 GMT), after a midday tumble to $1,640.71.
Investing.com data showed the weekly drop in gold was the metal’s worst since a near 4% drop during the week of early August.
Gold broke below key $1,650 support on Thursday before bulls in the space lucked out, as the dollar’s tumble on talk of peak-inflation in the U.S. helped the yellow metal recoup virtually all that it lost on the day.
Gold’s selling, however, resumed Friday as the Dollar Index rose for a seventh time in eight days. The index, which pits the dollar against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, reached a session high of 113.30. Technical charts indicated a very likely 120 high for the Dollar Index, said analysts.
Bond yields benchmarked to the 10-year Treasury note, meanwhile, rocketed to a 14-year high of 4.06%.
The dollar and yields have been chief beneficiaries of the Fed’s campaign against inflation as the central bank hiked interest rates by 300 basis points this year and looks set to add another 125 before the year-end.
The run-up in the two has been anathema to gold, which has struggled for months to reassert its safe-haven standing as funds flowed steadily to long-dollar and short-bond positions at the expense of the yellow metal.
“With inflation seemingly so stubborn, it may need to go further than markets previously anticipated,” said Craig Erlam, analyst at online trading platform OANDA. “That doesn't bode well for gold in the near term. Yesterday's lows around $1,640 could soon be tested once more, with the late-September lows the next test after that.”
Friday’s declines in gold came as data showed U.S. retail sales were flat in September and below expectations as inflation at near 40-year highs took a toll on consumer appetite — the most dynamic sector of the economy.
The zero percent growth in retail sales for last month was below a minimum 0.2% expected by economists and compared with the 0.4% reported by the Commerce Department for August.
For the year to September, retail sales were at 8.4% versus the 9.4% registered in the 12 months to August.
Retail sales are a major indicator of consumer spending, which accounts for 70% of U.S. gross domestic product.
The September numbers for retail sales came on the heels of Thursday’s reading of the U.S. Consumer Price Index (CPI), which showed a 0.4% growth for last month — double economists’ estimates and four times higher than the expansion in August. The annual CPI growth of 8.2% for September was also not too far from the 9.1% expansion seen during the year to June, which marked a four-decade high.
Taken together, the retail sales and CPI numbers suggested the Fed was still far behind in its fight against inflation.
The central bank has raised interest rates by 300 basis points since March to curb runaway price pressures and is likely to add another 125 basis points before the year-end. Economists expect further hikes in 2023, making any talk of “peak-inflation” irrelevant for now.
"Given the acceleration of core CPI prices, the Fed will remain resolved to increase rates by at least 125 bps before year end," Oxford Economics' Matthew Martin in a note. "Slowing global trade flows, higher rates, and waning domestic demand will continue to support lower import prices, barring any further unexpected shocks to supply chains.”
Economists have warned that the Fed could push the United States into a deep recession with the sharpest rate hikes in four decades, pointing to the high-flying housing sector and one-time ebullient stock market as the central bank’s potential victims.
Wall Street’s top 500 stocks indicator, S&P 500, is down almost 25% on the year while tech stocks barometer Nasdaq has plunged 33%.
U.S. mortgage rates, meanwhile, climbed to 6.7% two weeks ago, their highest levels in 15 years as Fed rate hikes caused borrowing costs for home loans to swell.