Spot gold prices fell sharply after the US open on Thursday, dropping $8.50 per ounce to close London below $648.50.
This move in the gold investment market came as US traders, back after the Fourth of July holiday, found the ISM Services Index showing a much-stronger than expected reading for June, even though initial jobless claims in the United States rose ahead of forecast last week.
Following the "no change" decision from the European Central Bank at lunchtime in Frankfurt, that news sent the Euro tumbling 0.7 cents against the Dollar.
"Now the Euro is below $1.36 again," notes Michael Kempinski at Commerzbank International. "So we're seeing some liquidation of long gold positions which had been taken on Monday and Tuesday.
"Also, physical gold demand has been slow – but we are expecting demand back around the $645-646 level."
The Dollar also pushed back the Pound, despite the Bank of England today raising UK interest rates to a six-year high of 5.75%. Sterling dropped below $2.01 at one stage, more than 100 points off the overnight high.
"The strength in the Dollar has definitely weakened gold's prospects," reckons Carlos Perez-Santalla, a gold trader and the president of Hudson River Futures in New York.
Gold priced in the other major currencies also fell, however, outpacing their drop versus the US Dollar. Gold priced in Euros lost 0.7% from the session's peak – as did gold priced in Sterling. It ended London trade below €477.25 and £322.50 respectively.
Gold's sharpest drop came against the Canadian Dollar – down 1.4% during the morning session in North America at C$686 per ounce – after Canada reported a huge jump in new building permits for June, plus a sharp rise in the Ivey Purchasing Managers Index.
Further east, "physical gold demand is light," said Lokesh Agarwal, director at Brijwasi Bullion & Jewellers in Lucknow, India, earlier today. "It is going to be like this for the next few days," he added, after gold prices had moved beyond 8,700 rupees per 10 grams in the local market.
Looking ahead, however, the monsoon season – forecast to be "normal" and so followed by a good harvest – is likely to boost gold demand amongst Indian farmers, the world's hungriest buyers of the metal.
"Good rains forebode a good harvest that will boost agricultural income, helping farmers to buy more gold this year," reckons James Steel, an analyst at HSBC.
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