Precious Metals Preview: Gold Turns Lower On Dollar And Economic Data

Gold slipped further today, testing two week low as gains in US dollar and Bitcoin hurt the metal. The US dollar index soared in line with the rising treasury yields and broke above the key 90 levels. Bitocoin futures also jumped nearly 5% to approach $ 9000 levels and capped Gold after the metal pulled back from a three month high few days back. COMEX Gold fell well under $ 1330 per ounce, down around 1% on the day. MCX Gold futures closed at Rs 31266 per 10 grams, down 0.53% on the day as a drop from highs above Rs 31500 continued.

Strength in US economic data also weighed on Gold. US manufacturers are expanding at fastest pace in three years, flash PMI data from IHS Markit showed. The flash IHS Markit US manufacturing PMI climbed to 56.5 this month from 55.5 and touched a three-and-a-half-year high. Readings over 50 indicate expansion. A similar survey of service-oriented businesses that also rose to 54.4 from 54.

The World Gold Council (WGC) noted in a latest update that investors often use the direction of the US dollar as a bellwether for golds performance. However, over recent years, short-term movements in gold have been more heavily influenced by US interest rates and expectations of policy normalisation. WGC noted that analysis shows that the correlation between gold and US rates is waning and that the US dollar is again a stronger indicator of the direction of price. And, in our view, this will continue over coming months – even while the dollar wont explain golds movements entirely. Furthermore, analysis shows that higher real rates have not always resulted in negative gold returns.