Gold price tumbles nearly 2% as dollar rallies
New York (May 19) Gold settled lower on Tuesday, halting a five-day rally, as the dollar extended gains after positive U.S. data while global shares gained ground following the European Central Bank's suggestion it may speed up bond buying.
Steady U.S. 10-year bond yields and uncertainty ahead of the minutes from the latest Federal Reserve policy meeting also weighed on sentiment towards gold.
As gold does not pay interest, the rise in returns from U.S. bonds and other markets is seen as negative for gold because it increases the opportunity costs of holding the metal.
U.S. gold futures settled down $20.90, at $1,206.70 an ounce, down 1.7 percent on the day. Spot gold fell 1.4 percent to $1,207 an ounce. It has reached a three-month high of $1,232.20 in the previous session.
"Once again we have not really managed to get a foothold above $1,225. We broke above it, but we didn't really get any follow through, and the fact that we are seeing weakness after a few good sessions does not bode well," Saxo Bank senior manager Ole Hansen said.
"Near term, from a retracement perspective, $1,208 and $1,200 are the two levels to look at."
The metal had gained for five straight days to Monday after recent data on U.S. jobs, retail sales and consumer sentiment pointed to weakness in the economy and stoked speculation the Fed would not raise rates any time soon.
Interest rates at rock-bottom levels have benefited gold since the 2008/09 financial crisis.
The dollar climbed 1.2 percent against a basket of major currencies on Monday, while European shares rose by more than 1 percent.
The turning point for gold prices could come on Wednesday with the release of the minutes of the Fed's April policy meeting, traders said.
"The Fed minutes will be important, and as long as data continues to be on the weak side, there is not an aggressive expectation for a change in the rhetoric," Hansen said.
Potentially adding to arguments for a rate rise sooner rather than later was a paper published on Monday by the San Francisco Fed, which said the U.S. economy is probably not as weak as current estimates suggest.
A drop in holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, to a four-month low of 718.24 tonnes on Monday also undermined investor appetite for gold.
Source: Reuters
