Improving investor sentiment over the outlook for the global economy has been eating into the appetite for gold and the corresponding SPDR Gold Trust (ETF) (NYSEARCA:GLD). The price of the precious metal continued to fall on Monday during Asian and European trading hours.
Gold contracts for August delivery were seen trading at a low of $1,313.10 a troy ounce in European trading. In Asian hours, gold futures for August delivery declined 0.14% to $1,329.70 a troy ounce. The price of the yellow metal pulled back 0.57% on Friday. Gold prices are still up about 25% in 2016.
Bullish economic outlook
Gold trading is being rattled by a series of bullish economic data coming out of the U.S. especially the labor market. Retail and housing for the month of June turned out to be stronger than economists anticipated as well.
The bullish data have bolstered investor hope that the U.S. central bank could lift interest rates this year. The growing expectation of at least one interest rate hike in 2016 has helped strengthen the dollar. But a stronger dollar is an enemy of gold as it makes the yellow metal more expensive for traders holding currencies other than the greenback.
Gradual pace to easing
Fears that Brexit would turn global economies on their heads have also seemed to fade, thus rekindling appetite for equities as safe-have assets such as gold suffer. The separate meetings last week of Bank of England and European Central Bank officials that ended in no fresh easing policies being announced created an impression that the monetary regulators at the heart of the Brexit shockwave are comfortable with a gradual path to monetary easing, even though we are already at unprecedented accommodative monetary policy globally. The lack of immediate easing in any case has helped boost investor confidence in the post-Brexit economic recovery.
The meeting of G20 officials over the weekend also backed support for measures to contain Brexit economic shockwaves, but the meeting didn’t sound the alarm over the health of the global economy.
Gold gains in a situation of economic uncertainty, but the gradual path to easing measures suggests strengthening economic fundamentals.