Stronger Dollar Rattling Gold Prices

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Bullish economic data from the U.S. is hurting gold and the SPDR Gold Trust (ETF) (NYSEARCA:GLD) this morning as the greenback is moving higher. The dollar has gained ground against a basket of currencies including the yen and Euro to stand at a 4-month high.

A stronger dollar typically dims the demand for gold as it makes the yellow metal more expensive for investors holding other currencies. In this case, a stronger dollar has also been linked to the growth of the U.S. economy that is regaining pace.

The U.S. Commerce Department released data that showed housing starts rose 4.8% in June to 1.189 million units. That signalled a remarkable rebound in the housing market given that housing starts in May were only 1.164 million units. The June housing starts also surprised analysts who were expecting 1.170 million units.

Bullish economic data is driving investors away from safe-haven assets such as gold to riskier stocks.

Prices of gold futures for August delivery were seen going down 1.2% to trade at $1,315 a troy ounce in the morning hours of US trading. But in Asian trading hours, the yellow metal was seen gaining 0.06%, a sign that investors are having mixed interpretations of the global economic situation.

Economic stimulus

Central banks around the world are trying to keep their economies out of recession with plans for still more monetary easing. Monetary regulators are contemplating bolder measures to spur economic growth such as additional interest rate cuts, increased bond buying and in some cases ‘helicopter-money’. Japan is particularly seen as moving closer to helicopter-money type easing that would see the Bank of Japan directly foot government bills an a potentially dangerously price-inflationary measure.

Thoughts of unconventional measures such as helicopter-money in Japan are being fuelled by the fact that efforts such as interest rate cuts have failed to spur growth as monetary and fiscal regulators in the country had hoped. But it will require a modification to Japan’s constitution to engage in helicopter-money easing in the country.

Easing measures speak of underlying economic weaknesses and they tend to boost the appetite for gold.

Other precious metals

Copper contracts for September delivery rose 0.04% to $2.259 a pound, while Silver futures for September delivery declined 0.30% to $19.947 a troy ounce during Asian hours, and are now down to $19.50 for a 2.6% decline on the day.

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