Gold Futures Sink As U.S. Dollar Soars

BNP cuts gold view, but says $1,600 will be reached again

MADRID (MarketWatch) — Gold futures fell sharply on Friday, as the U.S. dollar extended its rally against the Japanese yen.

BNP Paribas cut its gold price view, but said the metal will be trading back above $1,600 an ounce in six months.

June gold futures GCM3 -2.83%  fell nearly $40, or 2.7%, to $1,428.70 an ounce on the Comex division of the New York Mercantile Exchange.

The precious metal sliced a weekly gain to a loss of 2.5%, on the heels of two straight winning weeks.

“Despite good physical offtake, gold has been looking weak technically and the selloff on the New York opening [start of trading on COMEX] looks to have been triggered by renewed dollar strength, especially with the dollar going through the psychologically important 100-yen level,” said Ross Norman, chief executive officer of Sharps Pixley.

Michael Hewson, senior market analyst at CMC Markets, said gold’s break through $1,440 “opens up the risk of a move towards $1,400 and a retest of this year’s low at $1,322.”

Following better-than-expected jobless-claims data on Thursday, the U.S. dollar DXY +0.39%   climbed above ¥100 for the first time since April 2009, and extended those gains on Friday, trading around ¥101.57.

A stronger dollar tends to hurt prices for dollar-denominated commodities such as gold as it makes them more expensive for holders of other currencies.

Gold on Thursday fell $5.10, or 0.4%, extending losses after the claims data, which follows payrolls data from a week ago that showed the economy added 165,000 jobs in April, and that the unemployment rate slipped to 7.5% from 7.6%.

The Federal Reserve has indicated it may taper monetary stimulus depending on improvement in the labor market. The Fed’s quantitative-easing program has been a benefit for gold, as QE tends to pressure the dollar and can lead to inflation. Gold is often seen as an inflation hedge.

BNP analysts Harry Tchilinguirian and Stephen Briggs cut their 2013 gold forecast by 5% to $1,580 an ounce from an earlier outlook in a note. They also knocked their 2014 forecast by 5% to $1,520 an ounce, also down 5%.

However, in six months, the analysts predicted gold will be trading back above $1,600 an ounce. Accommodative Federal Reserve policy is one reason, along with continued low inflation and low nominal interest rates.

Meanwhile, silver for July delivery SIN3 -2.87%   on Friday fell 63 cents, or 2.7%, to $23.26 an ounce, and copper for July delivery HGN3 -0.09%   was flat at $3.34 a pound. June palladium PAM3 -2.23%   fell $15.95, or 2.2%, to $698.80 an ounce. July platinum PLN3 -2.08%   tumbled $30.60, or 2%, to $1,486 an ounce.

Palladium prices were on track for a weekly rise of 1.3%, but platinum was looking at a 0.6% drop and copper was higher by 1%. Silver prices were poised for a loss of 2.8% for the last week. 

By Barbara Kollmeyer and Carla Mozee, MarketWatch