Gold News

Gold Prices Drop Hard as Interest Rates Rise After Weak China Manufacturing Data

GOLD PRICES extended last week's drop throughout Asian and London trade on Monday, hitting the lowest level since mid-February at $1311 per ounce as US interest rates rose on the Treasury market and the Dollar edged higher.
 
Silver mapped the drop in gold prices, also losing 1.5% from last Friday's finish to trade at 5-week lows of its own at $20.08.
 
European stock markets fell the same proportion, but copper rallied from this month's 10% plunge to 44-month lows despite new data showing Chinese manufacturing activity shrinking yet again in March.
 
China's HSBC/Markit manufacturing PMI gave its lowest reading since July, and lagged analyst forecasts for the third month running.
 
US manufacturing, in contrast, continued to expand near the fastest pace in 12 months on the same analysis.
 
"We continue to find it difficult to see the rally [in gold prices] as sustainable in the absence of strong physical demand from Asia," says the latest note from commodity analysts at South Africa's Standard Bank.
 
"We also believe that real interest rates in the US will continue to rise," Standard Bank analyst Walter de Wet goes on.
 
"The relationship between real long-term interest rates in the US and the gold price is strongly negative."
 
Ten-year US bond yields rose further on Monday, pushing up to 2.75% as Treasury debt prices fell.
 
Consumer price inflation in the US was last pegged at 1.1% annually on the official measure.
 
Last week the new US Federal Reserve chairwoman Janet Yellen said overnight US rates could be raised from zero in late 2015, earlier than previous Fed forecasts.
 
"People don't want gold in a rising interest-rate environment," Bloomberg quotes David Meger, heads of metals at Vision Financial Markets.
 
"While concerns about Crimea remain, there has been no escalation in violence for people to jump back into the safe-haven asset."
 
Kiev's interim government today ordered the last of Ukraine's armed forces to leave Crimea, citing "Russian threats to the lives of military staff and their families."
 
Hitting a new 6-month high only last Monday at $1392, gold prices have since dropped almost 6% against the Dollar.
 
"Physical demand for gold in Europe as well as Asia remains cautious," says German refining group Heraeus in its latest weekly update.
 
Short-term interest rates today rose further in China – the world's No.1 gold mining and consumer nation – extending the longest stretch of rate rises since last summer's sharp "credit crunch" spikes.
 
Prices on the Shanghai Gold Exchange meantime slipped in quiet trade, but didn't fall as fast as international prices quoted for London delivery.
 
That flipped Shanghai prices to a premium over London gold bullion for the first time in 12 sessions, reversing a discount of $8 per ounce seen at the peak in gold last Monday.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals