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Metals Stocks

Oct. 12, 2021, 2:24 p.m. EDT

Gold prices post first gain in 4 sessions to settle at highest in nearly a week

By Myra P. Saefong and Mark DeCambre

Gold futures marked the first gain in four sessions on Tuesday, with prices for the precious metal settling at their highest in almost a week after the International Monetary Fund said the global economy is losing momentum.

“The IMF report has dented the outlook for the U.S. economy, and this has made gold trade attractive once again,” Naeem Aslam, chief market analyst at AvaTrade, told MarketWatch. However, “But the gains may be short lived as we really do not see any major buying pressure backing up the current move.”

In its World Economic Outlook report Tuesday, the IMF said it sees global growth of 5.9% this year, down one-tenth of a percent from July. It also said it sees slowing to 4.9% growth in 2022. For the U.S. the IMF cut its growth estimate for this year by 1% to 6%.

“Any data indicating economic slowdowns, including the IMF’s latest update, are generally good for gold in that they imply further easy-money policies from central banks,” said Brien Lundin, editor of Gold Newsletter.

“That said, most of the IMF’s downgrade was due to low-income developing countries, which aren’t generally big demand sources for gold,” he said. In short, while the news helped boost gold prices on Tuesday, “it shouldn’t imply much of an effect on demand going forward.”

Against that backdrop, December gold   (NYM:GC00) rose $3.60, or 0.2%, to settle at $1,759.30 an ounce, following a 0.1% decline on Monday, which marked a third consecutive decline. Prices for the most-active contact logged the highest finish since Oct. 6, FactSet data show.

Silver for December delivery (NYM:SI00) shed 15 cents, or 0.7%, at $22.514 an ounce, after a 0.2% decline a day ago.

Gold reacted to the “tenor” of the IMF’s “warning about rising risks to growth and that reality that ‘policy trade-offs have become more complex’ ,” Peter Grant, vice president at Zaner Metals, told MarketWatch.

Even so, gold continues to struggle when it comes to “sustaining growth risk associated gains because we’re not seeing corresponding reactions in yields and the dollar,” he said. “Persistent strength in yields and the dollar suggest a belief that the Fed remains on track to commence tapering — the first step in a tightening cycle — before year-end, risks to growth be damned.”

Grant said he doesn’t necessarily believe the Fed is on track to start tapering because of the “two consecutive significant misses on U.S. payrolls and dimming growth forecasts.”

On Tuesday, Federal Reserve Vice Chairman Richard Clarida said the labor market hurdle need for tapering bond purchases “has all but been met.”

For now, gold is “waiting for the bond market and the dollar to buy into the notion that the Fed will defer the taper,” said Grant.

The 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) was yielding around 1.584% , down from 1.604% on Friday. The Treasury market was closed on Monday in observance of Columbus Day, even as other markets were open. Meanwhile, the dollar was up 0.2% at 94.546, as measured by the ICE U.S. Dollar Index (IFUS:DXY) .

A pause in the rise of yields and the dollar can pave the way for higher moves in precious metals which are priced in dollars and don’t offer a coupon.

Meanwhile, concerns about inflation, as the global economy tries to claw back from the aftershocks of the COVID-19 pandemic, has complicated the outlook for precious metals because an overheated economy may force central bankers to dial up interest rates sooner, a negative for gold and silver prices.

Rising inflation, due in part to the increasing energy prices, is “making the marketplace uneasy. U.S. inflation reports are due out Wednesday and Thursday mornings and will be closely scrutinized,” wrote Jim Wyckoff, senior analyst at Kitco.com in a daily research note.

A reading of consumer prices, the consumer-price index, is due to be released on Wednesday, and prices for wholesalers, the producer-price index, is due on Thursday.

See: MarketWatch’s economic calendar

In other Comex dealings, December copper fell 0.9% to $4.326 a pound. January platinum (NYM:PLF22) rose 0.5% to $1,011.70 an ounce, but December palladium fell 3.4% to $2,047.80 an ounce.

“In absolute terms, the IMF growth expectations are generally supportive of industrial commodity prices and global equity markets, even if the report was somewhat mixed,” said Jason Schenker, president of Prestige Economics.

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