Metals Stocks: Gold extends climb above $1,300, bucking dollar’s move

Gold futures extended their climb above the key $1,300 level Monday, defying modest dollar strength as uncertainty about the pace and scope of U.S. interest-rate hikes beyond December lingered.

Early Monday, December gold

GCZ7, +0.26%

was up $2.30, or 0.2%, to $1,307.00 an ounce. The exchange-traded SPDR Gold Shares

GLD, +0.76%

 added 0.1% in premarket trading. The fund posted a weekly gain of around 2.1% last week.

The ICE U.S. Dollar Index

DXY, +0.02%

was up 0.1% at 93.208, and the WSJ Dollar Index

BUXX, +0.08%

a broader measure of the greenback’s performance, tacked on 0.1% to 86.36. Last week, both indexes fell by 0.8%, the first weekly loss in five weeks. A softer buck can make commodities priced in the currency, including gold, more appealing to buyers using weaker monetary units. Treasury yields

TMUBMUSD10Y, +0.39%

 ticked higher Monday.

Read: Currency traders have already worn out there 2017 trading themes

Gold futures had added more than 2% for last week after a reading on U.S. inflation came in cooler than expected, raising uncertainty about rate hikes over coming months. Yet weekend comments from Federal Reserve Chairwoman Janet Yellen showed her likely persistence with removing credit market accommodation, at least modestly, at upcoming Fed meetings. Rising interest rates tend to depress the prices for nonyielding gold.

The “ongoing strength of the economy will warrant gradual increases” in short-term interest rates, Yellen on Sunday told a Group of 30 banking seminar in Washington. Yellen’s continued backing of rate hikes is in tune with market expectations that the Fed will bump up rates at its December meeting. But the three rate hikes penciled in on the Fed’s dot plot for 2018 is more aggressive than the barely two rate hikes markets have priced in for 2018, according to Fed funds futures, and market uncertainty helps explain gold’s resilience in the near term, said Carsten Fritsch and the commodities team at Commerzbank, in a note.

The staying power of gold’s move is raising some questions.

”Although the gold price has climbed again in the last two weeks, speculative financial investors have further retreated from gold,” said Fritsch. He cited CFTC statistics showing that net long positions were reduced to a nine-week low of 171,300 contracts in the week to October 10, the fourth weekly decline in a row.

“ETF investors have also been holding back of late: the gold ETFs tracked by Bloomberg have registered outflows of 4.6 tons since the beginning of the month,” Fritsch said. “Because gold has not been finding support from investment demand, it must therefore have been in demand elsewhere. Gold demand in China following the return of Chinese traders after Golden Week is likely to have played its part, for example. Indian gold demand will probably have been up, too, because of the festival season.”

In other trading, silver for December delivery

SIZ7, +0.28%

rose 5 cents, or 0.3%, to $17.46 an ounce. It gained 3.7% for last week. The silver-focused ETF, the iShares Silver Trust

SLV, +0.92%

rose 0.1%.

Copper prices jumped to a fresh three-year high Monday, rallying on bullish Chinese economic data. December copper

HGZ7, +2.76%

rose 2.7% to $3.2195 a pound.

The industrial metal broke through the psychologically important $7,000-a-ton technical barrier early Monday in the wake of data that suggested that China’s economy was defying expectations of a slowdown. China’s producer prices in September rose 6.9% compared with the same period a year ago, according to the government’s statistics bureau. That pace was faster than a 6.3% increase in August and beat the 6.4% forecast by economists.

January platinum

PLF8, -0.01%

 slipped to $947.50 an ounce, while December palladium

PAZ7, +1.22%

 rose 1.2%, at $997.00 an ounce. Palladium logged a weekly climb of 7.2%—its best such gain since January.