Gold is back to a currency play, with prices surging only for British investors, as the pound posted the biggest drop in almost eight months.
Bullion priced in sterling on Friday rose as much as 2.2 percent to ￡1,007.52 per ounce, a seven-week high, after British Prime Minister Theresa May failed to win an overall majority.
In US dollar terms, gold futures fell, posting its first weekly loss in more than a month, as market attention for the rest of the world refocuses on the prospect of US interest rates rising next week.
The impact on the metal used as a hedge against political and economic uncertainties has been muted outside of the UK, even as May battles to survive amid calls for her resignation after a disastrous election that cost her party to lose its parliamentary majority just days before Brexit negotiations with the EU begin.
The US dollar rallied, while US Treasury yields rose, hurting gold’s appeal as an alternative investment.
“It seems like long liquidation on gold and it looks vulnerable to more setbacks,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview.
“Gold has been such a great trade and there was so much optimism, but it just failed to breach through US$1,300. People are now looking at interest rates, with bond yields rising,” Streible said.
Gold for August delivery on Friday fell about 0.6 percent to settle at US$1,268.80 an ounce on the Comex in New York, after slipping as much as 1 percent earlier. The contract is down 0.9 percent from last week’s US$1,280.20
Traders are pricing in a 96 percent chance that the US Federal Reserve might raise interest rates at its meeting next week, according to Fed fund futures data compiled by Bloomberg.
Some investors took advantage of higher prices for sterling-priced gold to sell positions, according to BullionVault, a London-based online trading platform.
“Traders were not as active as they were during the early hours of the Brexit referendum result,” BullionVault head of research Adrian Ash said in an e-mail.
“The political situation is anything but strong and stable,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp in London. “There is quite a bit of potential for support for gold, certainly in sterling and possibly also in [US] dollars, in the near term.”
In the main commodity markets, nothing is doing better than palladium this year.
The metal is up 30 percent, beating 33 other raw materials, including lean hogs and aluminum, tracked by Bloomberg.
On Friday, spot prices surged as much as 7.9 percent to a 16-year high of US$928.36 an ounce before settling at US$885.57 an ounce.
The metal gained 5.2 percent this week.
It is now almost as expensive as platinum for the first time since 2001, helped by Volkswagen AG’s emissions scandal two years ago that has prompted consumers to switch from diesel to gasoline cars.
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