Gold Drops Amid U.S. Data

Spot gold fell 0,5% and traded at $1387,18 an ounce after prices rose yesterday, supported by increased demand from central banks. Russia and Kazakhstan have been diversifying assets by buying gold after its prices contracted by a record pace. The two countries have kept buying gold for a seventh straight month. Turkey is also on the list of countries, which have expanded their gold reserves. Turkey’s holdings increased by 18,2 tons to 427,1 tons in April, a tenth straight month rise. Belarus’s holdings increased for a seventh month and Azerbaijan’s and Greece’s reserved gained for a fourth month in a row.

Prices were pressured on Tuesday as U.S. economic data scheduled to be published today is expected to show increased Consumer Confidence and a slower decrease in regional manufacturing. Positive news about the U.S. economy tend to pressure gold downward as it trades inversely to the dollar. A strengthened greenback is more attractive to investors and also makes dollar-priced commodities more expensive to foreign-currency holders.

Feng Liang, an analyst at GF Futures Co. in Guangzhou, said for Bloomberg: “As prospects for the U.S. economy remain positive, expectations are for a withdrawal of QE, supporting the dollar and weighing on gold. The initial wave of physical demand after the big price drop has eased and purchases tend to slow down as the price approaches $1,400.”

The volume of the Shanghai Gold Exchanges benchmark cash contract dropped to a two-week low yesterday after it had risen to record levels, following the biggest gold price drop on April 16, when it plunged to $1 321, 95.

The strong dollar also weighed on silver. It fell 0,85% to $22,30 per ounce for the day and is heading for a fourth monthly decline, keeping its state of the worst performing precious metal so far this year. Silver, like gold, benefits from a weakened dollar as, like every other dollar-priced commodity, it becomes cheaper for foreign-currency holders and more attractive.