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Gold Inches Higher With Geopolitical Risks in Focus

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11/06/2017 | 08:49pm CET
By Amrith Ramkumar and David Hodari 

Gold prices inched higher Monday, with some of the geopolitical risks that have supported prices throughout the year back in focus.

Gold for December delivery climbed 1% to $1,281.60 a troy ounce on the Comex division of the New York Mercantile Exchange, making for its best day in more than a month. Prices have fallen in seven of the last eight weeks and sit near three-month lows, weighed down by concerns about rising interest rates and a stronger dollar. Gold struggles to compete with yield-bearing assets like Treasurys as borrowing costs rise, while the precious metal and other dollar-denominated metals become more expensive for foreign buyers when the U.S. currency rises.

Still, geopolitical risks have kept a floor on prices and should continue supporting gold moving forward, investors and analysts have said. On Monday, President Donald Trump pushed for Japan to buy "massive" amounts of military equipment from the U.S., saying that it would help the country shoot down missiles like the pair that nearby North Korea has fired overhead in recent months.

That statement came after Saudi Arabia said Yemeni rebels' missile attack on the Saudi capital Saturday could be considered an Iranian act of war. Investors have also been tracking a looming debt default for Venezuela and Catalonia's bid for independence from Spain of late.

"All of this is prompting some short covering," said George Gero, managing director at RBC Capital Markets, noting that he currently doesn't see much new buying in the market.

Investors were also keeping an eye on central-bank news. The Federal Reserve Bank of New York announced Monday that its leader William Dudley is planning to step down early and retire in the middle of next year. The move adds to the uncertainty over whether the central bank will be more hawkish with its rate increases moving forward depending on who fills the open positions, Mr. Gero said.

The stock market and dollar continuing to rise could also be a headwind, investors and analysts have said.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, was recently down 0.3%, also helping support metals prices Monday.

Among base metals, copper for December delivery rose 1.3% to 3.1575 a pound. The industrial metal sits near three-year highs, boosted by synchronized global economic growth, strong demand from China, the world's largest consumer, and the possibility that a move toward electric vehicles will stoke demand.

Many metals investors returned from London Metal Exchange week Monday, with some analysts noting that positive sentiment from the week was supporting the base metals complex.

"LME Week provided the market with some uplifting comments and forecasts, and it's that underlying sentiment which has carried prices a bit this morning," said Ole Hansen, head of commodities strategy at Saxo Bank.

Write to Amrith Ramkumar at [email protected] and David Hodari at [email protected]

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