Gold Prices Spike Above $1200 as Mixed US Data 'Not Strong Enough' for Fed to Hike This Month

Monday, 6/01/2015 15:52

GOLD PRICES jumped $10 per ounce Monday lunchtime in London to trade near 1-week highs above $1200 as weak US economic data were followed by 'dovish' comments from a Federal Reserve bank president on when the central bank should raise interest rates from 0%.

With other policymakers urging a hike in June, as originally suggested by Fed comments, "The conditions for beginning the tightening of monetary policy have not yet been met," said Boston Fed president Eric Rosengren – a non-voting member of the policy panel this year – in a speech in Connecticut.

Growth in US personal spending fell to 0% in April, fresh data from the BEA said earlier, with the Fed's preferred measure of price inflation – the PCE deflator – also registering 0% change from March, slowing to 1.2% annually.

The Fed's inflation target remains 2.0% per year.

"The Dollar should remain in the ascendancy through to the first rate hike from the Fed," says ICBC Standard Bank's Stephen Barrow, repeating his expectation of a September rise from the current 0% level.

"Many financial assets seem likely to be volatile in the run-up to higher US rates and that just plays into the hands of the ‘safe-haven’ Dollar."

Western stock markets today reversed earlier gains, and the Euro currency fell back against the Dollar, after new US data then showed manufacturing activity expanding faster in May than analysts forecast on the ISM's PMI measure.

"Physical demand for gold in Asia," writes Jonathan Butler at Japanese conglomerate Mitsubishi's commodities trading division, "remains subdued despite attractive spot prices at present."

Last month saw delivery volumes on the Shanghai Gold Exchange's main contract fall to a 5-month low, Butler says – "partly due the relative attraction of a soaring local equity market."

Shanghai's stock market today closed 4.1% higher, erasing half of last week's plunge.

"The dramatic rallying trend in Chinese equity markets," said a new report from National Australia Bank today, "has diluted the attractiveness of gold as a store of wealth."

But citing data from last month's new Gold Demand Trends report from the World Gold Council, fist-quarter Chinese gold buying "was still around 27% above the 5-year quarterly average," NAB adds.

Data from the US Mint – which sells bullion coins to retail distributors, who then sell to the public – meantime show sales of gold Eagle coins falling 27% last month compared to April, some 40% below May 2014.

The balance of bullish over bearish speculators in New York gold futures and options last week fell to the second-lowest number since November 2014's thirteen-year record, according to positioning data from regulators the CFTC.