China’s upbeat consumer prices data are pushing down prices on gold and the corresponding SPDR Gold Trust (ETF) (NYSEARCA:GLD). The country reported that inflation in July increased 1.8% over the same month a year earlier. Despite the inflation growth slowing from the previously month’s growth of 1.9%, it signals that more easing measures by Beijing could drive more rapid inflation growth.
How gold moved on Tuesday
Gold for December delivery had hit a session low of $1,336.10 a troy ounce in morning trading in Europe. That is the weakest level gold prices have sunk since July 29. Earlier in the day, gold prices dropped more than 0.12% during Asian hours.
Gold prices eased a day earlier on Monday with futures of the yellow metal for December delivery falling 0.23%.
Bullish U.S. economic data
Besides China’s favorable inflation data, bullish economic reports coming out of the U.S. can also been seen rattling gold prices. The U.S. Labor Department reported that 255,000 new jobs were created in the country in July, coming on the back of a strong jobs growth in June that saw the economy add 292,000 new jobs. The number of jobs added in July far exceeded the 179,000 jobs that economists predicted for the month.
The upbeat employment numbers have increased hope that the Federal Reserve might move quickly in raising interest rates at least one in 2016. When the Fed officials concluded their July policy meeting, they left options open that they could hike rates as early as September if they liked the quality of the economic data being reported.
Impact on gold
The upbeat U.S. economic data have strengthened the dollar, thus making dollar-denominated gold more expensive for foreign traders.
Additionally, the favorable U.S. labor report and the upbeat Chinese inflation data have helped lift investor appetite for riskier yield-bearing assets such as equities and bonds at the expense of gold.
Gold does well in situations of economic uncertainty. That explains why the price of the yellow metal rose in the first-quarter amid mixed economic data coming out of the U.S. that lowered expectations of a rate increase this year. Despite the recent pullbacks in the gold price, the yellow metal is still up nearly 26% so far in 2016.