Gold retreats as the dollar flirts with new 52-week high

Published: Nov 29, 2016 9:13 a.m. ET

The ICE Dollar Index is near a 52-week high of 101.71

Gold futures traded lower Tuesday, pulling back as one gauge of the U.S. dollar flirted with a fresh 52-week high, undermining the appeal of dollar-pegged commodities such as gold futures.

February gold GCG7, -0.44% which is the most-active contract, lost $8.20, or 0.7%, at $1,182.80 an ounce. Yesterday the contract finished up $12.80, or 1.1%, to $1,193.80, while gold futures for December delivery GCG7, -0.44% also ended in the green as the buck stepped back and the stock market helped precious metals rekindle buying appetite in the metal.

Gold held its decline after a revised reading on third-quarter economic growth, or GDP, showed the U.S. economy expanded at its fastest pace in more than two years last quarter, further cementing expectations that the Federal Reserve will raise interest rates next month.

The dollar gauge, ICE U.S. Dollar Index DXY, +0.15% has recently been on a tear that has pushed it to multiyear highs, with the index on track to surpass a recent 52-week high of 101.71 hit on Nov. 23. The greenback’s advance has stemmed largely from expectations the Fed will raise rates at its meeting on Dec. 13-14 and that it will continue raising rates if spending plans by the incoming Donald Trump administration result in inflationary pressure on the U.S. economy.

A strong dollar can be a drag to commodities priced in the currency, making them more expensive to buyers using other currencies. The prospect of higher interest rates also can be a headwind to a rise in precious metals because they don’t offer interest.

Gains in U.S. Treasurys, highlighted by the 10-year Treasury note’s TMUBMUSD10Y, +1.24% advance to 2.34% at the end of November from around 1.60% at the end of September, has also detracted from the appetite for precious metals.

The recent declines in gold put the commodity on track to suffer its worst monthly decline since February 2013, according to FactSet data.

Still, some analysts see some upside potential — at least in the near term.

“[Gold] remains oversold so a bounce remains possible but the price just appears to be pausing for now,” said Colin Cieszynski, chief market strategist at CMC Markets, in a Tuesday research note.

March silver SIH7, -0.81%  was also relinquishing ground on Tuesday, sinking 12 cents, or 0.8%, to $16.45 an ounce. Gold’s sister metal receded into bear-market territory, which is typically defined as a 20% drop from a recent peak. Silver hit $20.666 on August 2, and remains about 20% below that level as of early Tuesday trade, according to FactSet data.

Meanwhile, the exchange-traded fund iShares Silver Trust SLV, -0.82%  was off 0.7%, while the gold, the ETF SPDR Gold Trust GLD, -0.56% was down 0.9%, while the gold-miners fund, the VanEck Vectors Gold Miners ETF GDX, -1.92% was down 2%.