Gold Declines as Worries Ease Over Ukraine, U.S. Economy
San Francisco (June 2) Gold prices closed lower after touching a four-month low on Monday, as investors dumped the precious metal amid easing tensions in Ukraine and signs of a strengthening U.S. economy.
The most actively traded contract, for August delivery, closed down $2.00, or 0.2%, at $1,244 a troy ounce on the Comex division of the New York Mercantile Exchange. Earlier in the session, prices touched $1,241.10 an ounce, the lowest level since Feb. 3.
Gold futures rallied to $1,251 an ounce Monday after data from the Institute for Supply Management showed a slower-than-expected rate of growth in the U.S. manufacturing sector for May. Some investors buy gold in the wake of economic or political uncertainty, believing the metal will hold its value while other assets fall.
That rally proved to be short-lived, however, after the ISM issued a correction, showing that growth had in fact been in line with expectations and adding to the metals recent slide. Prices for gold fell nearly 4% last week, as threats of a wider conflict in Eastern Europe faded following the results of Ukraine's May 25 presidential election, which Russian President Vladimir Putin has said he is willing to recognize. Some gold buyers gravitate to the metal in times of economic or political uncertainty, believing it will hold its value while other assets decline.
Investors also say slow but steady growth in the U.S. economy and record-high stocks markets have lessened their desire to hold gold, which doesn't offer any yield.
"We're seeing stock markets going higher and higher," said Dan Pavilonis, senior market strategist at RJO Futures. "Why would anyone decide to hold gold when they can just buy equities?"
Traders will be awaiting the outcome of the European Central Bank's monetary-policy meeting scheduled for June 5. Many expect the ECB to enact some form of monetary stimulus in a bid to boost the region's lackluster economy, a move that is expected to weigh on the euro and buoy the dollar. A rising dollar would likely hurt gold, an asset some investors buy to hedge against weakening currencies.
On Friday, investors will closely watch U.S. employment numbers for May, which many believe will offer the clearest indication of whether the country's recovery continues to gain traction.