Gold adds to gains, on pace for best weekly run since early February

Published: Mar 17, 2017 9:04 a.m. ET

Silver also heads for best weekly gain since early February

MarketWatch photo illustration/Everett Collectio
Gold finds its mojo.

Gold futures on Friday traded tentatively higher, putting the yellow metal on track to record its highest weekly gain since early February, as weakness in the U.S. dollar, following Wednesday’s Federal Reserve decision, provided a runway for gains.

April gold GCJ7, +0.22%  gained $3.60, or 0.3%, to $1,230.70 an ounce, which marks it highest trading level since early March and puts the contract in line to book its highest weekly return since the week ended Feb. 3, according to FactSet data.

Gold’s sister metal, silver for May delivery SIK7, +0.17% also was enjoying a nice bounce, up 4 cents, or 0.2%, at $17.36 an ounce, and eyeing its highest weekly rise since early February.

Jeffrey Nichols, senior economic adviser for Rosland Capital, said recent gold trade is being driven in part by tapering momentum in the S&P 500 index SPX, -0.16% and the Dow Jones Industrial Average DJIA, -0.07% which have cooled their record-setting pace lately

“Momentum players will shift from equities to gold where there is momentum that is now strengthening,” said Nichols. “There is a competition between the two markets in the short term it looks like gold will win,” he said.

Expectations for higher inflation across the globe, as many central bank’s, including the Federal Reserve and European Central Bank, begin to pull back the pace of implementing quantitative-easing measures, also has helped to keep gold above $1,200 an ounce, which is viewed as a key support level. Gold is viewed by many investors as a hedge against rising inflation.

The Fed on Wednesday lifted benchmark interest rates by a quarter-point as widely expected, placing rates at a range between 0.75% and 1%. The central bank’s statement and forecasts for future rate increases was seen as less aggressive than had been anticipated, which resulted in buying in U.S. government bonds, pushing yields, which move inversely to prices, lower, while a measure of the dollar’s strength, the ICE U.S. Dollar Index DXY, +0.17%softened, off 1% for the week at 100.43.

Weakness in the buck can make assets priced in the currency more appealing to those using other monetary units.

Meanwhile, the 10-year Treasury note TMUBMUSD10Y, -1.06%  is hovering around 2.53% from 2.62% as recently as last week. Lower rates can entice buying in precious metals, which don’t offer a yield.

Still, some market strategists see near-term headwinds for precious metals, especially since the bullish sentiment spurred by President Donald Trump’s proposals to juice the U.S. economy through fiscal-stimulus measures hasn’t entirely vanished. Although there are lingering concerns about Trump’s ability to implement his pro-business agenda, their enactment could cause the Fed to quicken its pace of rate increases—a negative for gold.

“Although bulls have exploited dollar’s weakness to elevate gold, gains could be limited in the longer term if the Fed readopts an aggressive stance,” said Lukman Otunuga, analyst at FXTM in a Friday research note.

“With sentiment towards the U.S. economy firmly bullish, the greenback remains supported consequently capping gains on gold in the medium to longer term,” he said.

Technical strategist are looking for to break out above $1,240 for confirmation that the commodity can put in further advances.

In exchange-traded funds, the SPDR Gold Trust GLD, +0.41%  is up 0.2%, while the VanEck Vectors Gold Miners ETF GDX, -0.91% is trading 0.4% higher. The iShares Silver Trust SLV, -0.18%  is looking at a 0.2% rise.