Gold drops as surging U.S. factory gauge fuels dollar demand
San Francisco (Dec 2) Gold prices dropped on Monday after a better-than-expanded U.S. factory report beat expectations and fueled demand for the dollar by firming expectations for the Federal Reserve to begin scaling back monetary stimulus programs in early 2014.
Stimulus tools such as the Fed's USD85 billion in monthly bond purchases aim to drive recovery by pushing down long-term interest rates, weakening the dollar in the process, with talk of their dismantling strengthening the greenback.
Gold and the dollar tend to trade inversely with one another.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,221.80 during U.S. afternoon hours, down 2.29%.
Gold prices hit a session low of USD1,220.80 a troy ounce and high of USD1,250.20 a troy ounce.
Gold futures were likely to find support at USD1,214.55 a troy ounce, the low from July 8, and resistance at USD1,254.50, Friday's high.
The February contract settled up 1.01% at USD1,250.40 a troy ounce on Friday.
The dollar saw support earlier after the Institute for Supply Management reported that U.S. manufacturing activity in November expanded at its fastest pace since April 2011, fueling optimism for more robust economic recovery down the road.
The ISM manufacturing purchasing managers’ index rose to 57.3 in November from 56.4 in October.
Analysts were expecting the index to fall to 55.0, and the surprise uptick sparked demand for the dollar.
The report said both production and new orders rose by around 3 points to 62.8 and 63.6, respectively, while the employment component of the index indicated some improvement in the labor market in November, rising by a little over 3 points to 56.5.
Better-than-expected U.S. economic indicators bolster the dollar by prompting investors to trade on expectations for the Federal Reserve to begin tapering monthly bond purchases in the coming months, most likely in March, when Fed Chair Nominee Janet Yellen is due to hold her first policy meeting.
Elsewhere on the Comex, silver for March delivery was down 3.64% at USD19.303 a troy ounce, while copper for March delivery was down 0.81% and trading at USD3.179 a pound.
